Shorting Black Sheep
Choosing the right industry still adds
up to squat if you pick the wrong company. Just look at how Humana has parted
company with HMO peers UnitedHealthcare and Oxford Health Plans.
On Friday, Humana
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PowerRating) said it
will pull its Medicare HMO product from 45 counties in six states.
UnitedHealthcare
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PowerRating) announced it will yank Medicare HMO coverage from 21
counties in seven states. On Thursday, Oxford Health Plans
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PowerRating) said it
would do likewise in eight New Jersey counties.
Humana rallied in the first hour of
trade to an intraday high of 5 11/16, then got whacked. Shares in the
Louisville, Ky.-based managed care provider closed down 5/8, or 11%, to 4 7/8 on
more than double normal volume. The stock closed bearishly near its session low.
This stock has more room on the downside.
Lesson for intermediate-term traders:
Don’t buy cheapo stocks. Don’t buy stocks in major downtrends. Don’t buy stocks
below their long- and intermediate-term moving averages. No matter how strong
the industry.
In contrast, high-priced,
out-performing UnitedHealthcare consolidated on a nice volume contraction
following Thursday’s high-volume run into new high ground.
Oxford shares have been consolidating
for the past month in a tightening zone. The price structure is too short to be
called a base and should be considered a riskier breakout trade than a breakout
from a base of five weeks or more. Still, it’s tradable if the stock shoots
above the range on strong volume. Just be ready on your stop.
BellSouth
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PowerRating) gapped down 1 9/16
to 42 5/8, breaking below support on twice its usual trade. Standard &
Poor’s cut the telephone company’s triple-A long-term credit and debt ratings
three rungs to AA-minus and issued a negative outlook.
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