UnitedHealth Stock Nears Major Breakout

Dow component UnitedHealth Group Incorporated (UNH) has completed a round trip into the February high and could break out in coming weeks, clearing 2018 resistance and heading into a sustained advance. The move would track bullish action in other health insurance carriers, including Humana Inc. (HUM) and Anthem, Inc. (ANTM), exposing the hidden benefit of the coronavirus pandemic to this often-maligned industry.

The government's controversial response to the outbreak has set back the single-payer movement for at least a generation, with politicians attacking medical professionals for doing their jobs during an election year. The same thing could happen if private health care is dismantled and the government takes the reins, threatening the health and well-being of millions of Americans. Market players have picked up on this paradigm shift, lifting these stocks to higher prices.

The crisis also takes private insurance carriers off the campaign agenda, with the industry reacting quickly with compassion and expanded coverage. The lack of criticism directed at the group also bodes well for premium increases in coming years because it will be impossible to argue about the pandemic's impact to carrier costs, which they will point out repeatedly when negotiating group plans with employers.

UNH Long-Term Chart (1990 – 2020)

A steady uptick reached the 1986 high in 1991, yielding a breakout that attracted steady interest into the 1996 high at a split-adjusted 8.63. A 1998 breakout attempt failed, ahead of a 2000 advance that eased into a rising channel pattern in 2001. The stock held within those boundaries into 2005, topping out in the mid-$60s at the start of 2006. That marked the highest high for the next seven years, ahead of a double top pattern that broke to the downside in January 2008.

The sell-off accelerated during the economic collapse, reaching a seven-year low in the mid-teens in October. Successful tests in November and March 2009 completed a triple bottom, ahead of a recovery wave that completed a round trip into the 2006 high in 2013. The subsequent uptrend entered the second rising channel of the century a few months later, while a 2014 channel breakout added to gains into the second quarter of 2015, when the rally stalled in the $120s.

A 2016 breakout eased into a third channel after the presidential election, finally topping out at $288 in December 2018. Price action since that time has been two-sided and extremely volatile, with odds for single payer gaining ground during the run-up to the 2020 campaign. UnitedHealth stock initially bottomed out at $208 in April 2009 and tested that level successfully in October, ahead of a final assault that posted an all-time high just 18 points above the 2018 peak in February 2020.

UNH Short-Term Chart (2017 – 2020)

The first quarter slide cut through 2019 support before bottoming out at a two-year low, while the subsequent bounce carved a V-shaped pattern that stalled just two points under the February peak on April 17. Price action in the past five weeks has been constructive, with the stock carving a small rectangular trading range on top of the 50- and 200-day exponential moving averages (EMAs). A rally above $304 would set off buying signals in this configuration, raising the odds for a cup and handle breakout.

The on-balance volume (OBV) accumulation-distribution indicator topped out ahead of price in November 2018 and entered a distribution phase that bottomed out at an 18-month low in April 2019. Subsequent buying power failed to clear resistance in January 2020, setting the stage for a downdraft that held well above OBV's 2018 low. It has now returned to the 2020 high with price and is perfectly placed to post new highs during a breakout.

The Bottom Line

UnitedHealth stock looks ready to clear 2018 resistance in an uptrend that could eventually reach $500.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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