Are These 3 Blue Chips Flashing a 'Buy' Signal?

Blue-chip stocks Boeing Co (BA), Walt Disney Co (DIS), and UnitedHealth Group Inc (UNH) could benefit from trendline support and an unwinding of bearish sentiment

May 12, 2016 at 1:20 PM
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On the charts, blue-chip stocks Boeing Co (NYSE:BA), Walt Disney Co (NYSE:DIS), and UnitedHealth Group Inc (NYSE:UNH) have all pulled back to a supportive trendline that could help propel the shares higher -- especially coupled with an unwinding of lingering bearish sentiment. Below, we'll take a look at the contrarian prospects for BA, DIS, and UNH.

BA has struggled to break into positive year-to-date territory in 2016, but has been surging higher in recent months, adding 31% since hitting a two-year low of $102.10 in early February. The stock was last seen 1% higher at $134.27. Earlier this month, the shares pulled back to their 40-day moving average, a trendline that has been ushering BA higher since early March. Five days after its last eight tests of the 40-day, BA was higher 75% of the time, with an average gain of 1.4%. However, the aerospace titan has struggled to win over its 200-day moving average, which hindered BA's pops since late March.

But analysts are mostly bearish, with eight out of 14 calling the stock a "hold" or worse. And short interest on the equity, though down 6.5% during the most recent two-week reporting period, still accounts for more than a week's worth of trading, at BA's average daily volume.

And in the options pits, traders have been unusually pessimistic. In fact, the security's 50-day put/call volume ratio of 1.47 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits higher than 81% of all readings taken in the past year. If Boeing Co (NYSE:BA) can muscle atop its 200-day trendline, an unwinding of this bearish sentiment could provide tailwinds for the shares.

DIS is down 0.5% to $101.74 today, as Credit Suisse cut its target price on the stock by $2 to $128 -- still in all-time-high territory. The shares rocketed from an annual low of $86.25 in February to a year-to-date high in short order, topping out at $106.75 earlier this week, but have since backpedaled in the wake of a surprise earnings miss.

Specifically, the shares pulled back to their 40-day moving average -- historically a positive signal for the equity. Over the past three years, DIS has pulled back to this trendline 13 times. And 21 days after this signal, the stock's average return has clocked in at 3.2%. Moreover, DIS has posted a positive 21-day return following this signal 85% of the time. Plus, the round-number $100 level could serve as additional psychological support.

But analysts remain bearishly skewed, with 13 brokerage firms rating Walt Disney Co (NYSE:DIS) a "hold" or "strong sell." In the options pits, puts have been outstripping calls among options expiring in three month or less, per the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.35 -- in the 81st percentile of its annual range. Should DIS resume its climb to 2016 highs, a round of upgrades or a mass exodus of option bears could add fuel to the equity's fire.

UNH has added more than 10% in 2016, trekking higher since mid-February, and tapping a record high of $135.11 less than a month ago. In fact, just before the security shot up to its all-time high last month, the shares pulled back to support at their 40-day moving average -- and are testing this trendline once again, with UNH last seen off 0.7% at $129.83.  Historically, UNH has been positive after a test of this trendline more than two-thirds of the time, measuring nine signals, with an average five-day gain of 0.6%.

Analysts have been optimistic of late, with 17 out of 19 calling the security a "buy" or better. But options traders have rarely been more bearish. At the ISE, CBOE, and PHX, traders have bought to open nearly 11 UNH puts for each call over the last two weeks. The resulting put/call volume ratio of 10.58 sits just 1 percentage points shy of an annual high. A capitulation of bears in UnitedHealth Group Inc's (NYSE:UNH) options pits could see the shares heading back into record-high territory.

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