Healthcare Reform Stalls, but not Health Insurer Stocks

Richard Suttmeier

Major health insurers Aetna AET, Anthem ANTM, Cigna CI, Humana HUM and UnitedHealth UNH have gains between 38.5% and 59.6% since their post-election lows. New highs were set between June 22 and Aug. 2, even as some leave the Obamacare exchanges. These stocks performed strongly even as complaints grow that providing coverage through Healthcare.gov resulted in losses. They want to raise rates and receive government subsidies despite strong earnings and huge share price gains.

Investors reduce holdings as these stocks even as earnings exceed expectations, as stock momentum should stall with uncertain healthcare reform.

Scorecard for the Five Key Health Insurers

UnitedHealth reported its earnings on July 18 and has beaten estimates 14 quarters in a row, and set its all-time high on Wednesday. Anthem reported results on July 26 with a beat, but this stock had a negative reaction to earnings guidance. Humana had a positive reaction to earnings reported before the opening bell on Wednesday. Aetna reported before the opening bell this morning. Cigna concludes earnings for this group before the opening bell on Friday.

When looking the weekly charts below, keep an eye on the 200-week simple moving averages shown in green. Investors should consider the 200-week simple moving average as the "reversion to the mean" for each stock. The "reversion to the mean" is an investment theory that the price of a stock, will eventually return to a longer-term simple moving average. A logical choice that's easy to track is the 200-week simple moving average. A ticker trading above its 200-week simple moving average will eventually decline back to it on weakness. Similarly, a ticker trading below its 200-week simple moving average will eventually rebound to it on strength.

Aetna Inc. (AET)

Courtesy of MetaStock Xenith

The weekly chart for Aetna is positive but overbought with the stock above its five-week modified moving average of $152.62 and well above its 200-week simple moving average or “reversion to the mean” of $104.17. The 12x3x3 weekly slow stochastic is projected to end this week at 94.02 well above the overbought threshold of 80.00.

Investment Strategy: Buy weakness to my monthly value level at $144.56. My semiannual pivot is $153.05. Sell strength to my weekly risky level of $159.01. Quarterly and annual value levels lag at $122.02 and $119.12, respectively.

Anthem Inc. (ANTM)

Courtesy of MetaStock Xenith

The weekly chart for Anthem shifts to negative given a close this week below its five-week modified weekly moving average of $188.95. The stock is well above its 200-week simple moving average of $133.90, which is also the “reversion to the mean”. Note how the reversion to the mean was tested at $116.10 during the week of Nov. 4, just before the election. The 12x3x3 weekly slow stochastic reading is projected to drop below the overbought threshold of 80.00 to 79.53 this week.

Investment Strategy: Buy weakness to my annual value level at $155.06. Sell strength to my semiannual and monthly risky levels of $198.71 and $201.67, respectively.

Cigna Corp. (CI)

Courtesy of MetaStock Xenith

The weekly chart for Cigna is positive but overbought with the stock above its five-week modified moving average of $170.58, and well above its 200-week simple moving average of $122.80, which is the “reversion to the mean”. The 12x3x3 weekly slow stochastic reading is projected to end the week at 91.18 well above the overbought threshold of 80.00.

Investment Strategy: Buy weakness to my annual value level at $154.46. Sell strength to my semiannual and monthly risky levels of $176.80 and $177.95, respectively.

Humana (HUM)

Courtesy of MetaStock Xenith

The weekly chart for Humana is neutral with the stock above its five-week modified weekly moving average of $235.78. The stock is well above its 200-week simple moving average of $164.86, which is the “reversion to the mean”. The 12x3x3 weekly slow stochastic reading is projected to decline to 75.17 falling below the overbought threshold of 80.00.

Investment Strategy: Buy weakness to my monthly value level at $226.73. Sell strength to my semiannual risky level of $256.55. My quarterly and annual value levels lag at $206.20 and $204.56, respectively.

UnitedHealth (UNH)

Courtesy of MetaStock Xenith

The weekly chart for UnitedHealth is positive but overbought with the stock above its five-week modified moving average of $187.09 and well above its 200-week simple moving average of $118.86, which is the “reversion to the mean”. The 12x3x3 weekly slow stochastic reading is projected to be at 93.23 well above the overbought threshold of 80.00.

Investment Strategy: Buy weakness to my semiannual and quarterly value levels of $180.81 and $175.48, respectively. My monthly pivot is $190.71. Sell strength to my weekly risky level of $194.54. My annual value level lags at $147.98.