Looking for quality pullbacks in stocks that are trading in bull market territory? New highs, such as those recently in health care stocks like Humana (NYSE: HUM) and Wellcare Health Plans Inc. (NYSE: WCG), are one good place to look.
Traders are never more bullish than they are when stocks are at new highs – and the longer-term the highs, the better. But the truth of the matter is that new highs are typically sold by professionals who bought when markets were trading lower. This is one reason why trading breakouts can prove so frustrating for many short-term traders: pros are using that very same strength as a signal to sell.
Selling is the order of the day in a number of sectors at midweek, but the weakness in health care stocks is interesting insofar as it is found in stocks that were only recently trading at significant new highs. Trading at 52-week highs at the beginning of the month, for example, shares of Humana pulled back for two days days in a row before trading near breakeven on Wednesday. Should sellers reassert themselves in the second half of the week, shares of HUM could still work their way lower into technically oversold territory above the 200-day moving average.
Lower for three in a row heading into trading on Thursday are shares of WCG. The stock pulled back by more than 1% on Wednesday, lowering WCG into oversold territory for the first time in more than two months (the early October lows). And like Humana, Wellcare Health Plans Inc. traded at its highest levels in a year just a few days ago.
Healthnet Inc. (NYSE: HNT) finished down by less than a third of a percent. But the lower close does mark the stock’s fourth lower close out of the past five trading days. Still well above oversold territory, HNT will require at least a few more days of selling before earning the kind of ratings upgrades, for example, that have historically signaled short term opportunity.
Of the stocks in today’s report, the most oversold and highest rated heading into trading on Thursday is clearly Wellcare Health Plans. WCG earned a two-point ratings upgrade intraday on Wednesday to our “consider buying” 9 out of 10. Shares of Humana moved up a notch to 7 out of 10, and could become attractive to traders on additional price weakness and accompanying ratings upgrade.
All of the stocks in today’s report were available from research and data available through PowerRatings. To learn more, click here.
David Penn is Editor in Chief of TradingMarkets.com