Buy the Dip on This Blue Chip Before Earnings

UnitedHealth could be flashing 'buy,' if history is any indicator

Managing Editor
Oct 12, 2017 at 3:09 PM
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Health insurance stock UnitedHealth Group Inc (NYSE:UNH) is down 0.8% today at $193.61, with healthcare stocks in focus after President Trump signed an executive order aimed at rolling back parts of Obamacare. However, UNH shares are now trading just above their 80-day moving average, a trendline that has had bullish implications in the past. If history repeats, UNH stock could be headed back toward record highs after earnings next week.

According to Schaeffer's Senior Quantitative Analyst Rocky White, UNH stock is now trading within one standard deviation of its 80-day moving average, after a lengthy stint above this trendline. Following the last nine pullbacks to this moving average, UNH was up 2.96% one month later, and was higher 75% of the time. A similar 2.96% rally would place UnitedHealth stock just under $200 -- close to its Sept. 13 record high of $200.76.

Daily Chart of UNH Since Jan 2017 With 80Day

UnitedHealth is set to report earnings before the open on Tuesday, Oct. 17. The stock has reacted positively the day after earnings in six of the past seven quarters. After the blue chip's last October earnings report, UNH stock surged 6.9% in the subsequent session.

However, most short-term options traders are already bullish on UNH. Its Schaeffer's put/call open interest ratio (SOIR) of 0.78 ranks in only the 3rd percentile of its annual range, suggesting near-term options traders have rarely been more call-biased during the past 12 months.

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