Molina, Aetna Pull Back as Health Care Stocks Head South

Given the weakness in health care stocks, we could publish a special edition of 7 Stocks You Need to Know that featured 100% stocks from this increasingly oversold group.

Strength in stocks overall in the second half of the week kept most stocks from selling off at the end of April. But when it comes to health care plan stocks like Molina Healthcare (NYSE: MOH), Cigna Corp (NYSE: CI), UnitedHealth Group (NYSE: UNH), and more, traders have been working overtime on the sell side of the market.

This aggressive selling has led to widespread oversold conditions among these stocks. Down three days in a row – two in technically oversold territory – were shares of Wellpoint Inc. (NYSE: WLP). Shares of Wellcare Health Plans (NYSE: WCG) dropped by nearly six percent on Friday to finish lower for a third day out of the last four. Aetna Inc. (NYSE: AET), which gapped down sharply to start Thursday’s session, pulled back by another 4% in trading on Friday. The stock is set to open Monday morning short-term oversold.

To say that health care stocks are not known for their volatility is an understatement. But that hasn’t stopped Molina Health from earning an intraday upgrade to our “consider buying” category as a result of the relentless selling in the stock (MOH has pulled back for four out of the last five days). And while the short-term edges are even more significant in fellow health care stocks like Express Scripts (NASDAQ: ESRX) and Wellpoint Health, even greater, positive edges are to be found in stocks like Aetna, with a positive edge of almost two and a half percent, and Wellcare Health Plans, with a positive, short-term edge of two and a half percent.

Can traders and active investors looking to avoid single-stock risk take advantage of short-term weakness in this sector? When it comes to trading and investing in health care by way of alternatives like exchange-traded funds, composition counts.

The most popular health care exchange-traded funds: the Vanguard Health Care ETF (NYSE: VHT) and the Health Care Select Sector SPDRS ETF (NYSE: XLV) are both short-term overbought and trading near, 52-week highs. This because the top holdings in funds like VHT and XLV are stocks like Johnson & Johnson (NYSE: JNJ) and Pfizer Inc. (NYSE: PFE). To more accurately reflect the short-term weakness and oversold conditions of the stocks highlighted here, an ETF like the iShares Dow Jones US Health Care Providers Index Fund ETF (NYSE: IHF) is the better option.

IHF has closed lower for the past two days in a row, finishing in the red for five out of the last six sessions. The stock has traded oversold for back to back sessions as of Friday’s close.

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David Penn is Editor in Chief of