CI and UNH tend to perform well after dipping to their 40-day moving averages
U.S. stocks are pulling back after the Federal Reserve's latest meeting, with the Dow at risk of snapping its nine-day
winning streak. Two managed healthcare stocks also pulling back today are
CIGNA Corporation (NYSE:CI) and
UnitedHealth Group Inc (NYSE:UNH), as President Trump tries to push a new Republican healthcare bill through Congress. The stocks' retreats, however, could create compelling opportunities for options traders, as CI and UNH both test a key trendline with historically bullish implications.
CIGNA Stock Weathers Heavy Short Interest Storms
Last seen at $182.59, CIGNA stock is trading within one standard deviation of its 40-day moving average, after a lengthy stretch above this trendline. According to data compiled by Schaeffer's Senior Quantitative Analyst Rocky White, previous pullbacks to this trendline over the past three years have yielded positive five-day returns 80% of the time, with an average gain of 1.61% for CI shares. One month after a signal, CI was positive 90% of the time, with an impressive average return of 4.72%.
CI shares have tacked on 36.5% in 2017, reaching an all-time peak of $188.36 just last Wednesday. Another 4.72% rally from current levels would have CIGNA stock around $191.21 -- in uncharted territory.
The healthcare stock has fared well amid an increase in short-covering activity, too, which points to its deep-seated technical strength. Short interest on CI stock has grown roughly 29% during the past two reporting periods, to 4.23 million shorted shares -- or 4.1 times the stock's average daily trading volume.
For speculators who want to roll the dice on another pop higher for CI, now is an attractive time to buy premium on short-term CI options, considering they're pricing in relatively low volatility expectations at the moment. The stock's Schaeffer's Volatility Index (SVI) of 17% ranks than 13th annual percentile.
UNH Looks For Support From Key Trendline
Shares of UnitedHealth Group are trading fractionally lower today at $195.65. However, UNH also just pulled back to within one standard deviation of its 40-day moving average. If past is prologue, a retreat to this trendline could mean good news for
UNH stock, with 12 prior signals yielding an average five-day return of 1% -- three-quarters of those returns positive. Looking at its one-month performance after a signal, UNH was again higher 75% of the time, with a more bullish average return of 2.28%.
Like CI stock, UNH's solid longer-term uptrend helped the stock gain 22.3% this year. Last Wednesday resulted in a record high for UNH too, with the shares touching an intraday peak of $200.76. From its current perch, another 2.28% rally over the next month would have the blue chip trading at $200.11.
UNH stock's short-interest ratio also mirrors that of CI, as short interest accounts for 4.8 times the stock's average daily trading volume, indicating that UNH has performed well despite heavy short interest activity. A short squeeze could propel the shares even higher.