With the recent uncertainty in the stock market, I encourage readers to focus on the strongest stocks when given the opportunity. Stocks that have maintained their trend higher through the current market setback will most likely be the ones that hold their ground better during any future pullbacks. Lately, healthcare related stocks have been outperformers. One such stock is that of HealthSpring, Inc.
HealthSpring, Inc. is a managed care organization operating in the U.S. whose primary focus is Medicare, qualifying disabled persons, and persons suffering from end-stage renal disease. HealthSpring operates Medicare Advantage plans in Alabama, Delaware, Florida, Georgia, Illinois, Maryland, Mississippi, New Jersey, Pennsylvania, Tennessee, Texas, and the District of Columbia. It also offers prescription drug benefits in accordance with Medicare Part D to its Medicare Advantage plan members, in addition to providing other medical benefits. It also operates both national and regional stand-alone prescription drug plans in accordance with Medicare Part D.
To review HealthSpring’s stock, please take a look at the 1-year chart of HS (HealthSpring, Inc.) below with my added notations:
As you can see, HS has continued its trend higher regardless of the market setbacks over the last several months. In addition, HS has shown a strong tendency to create important support and resistance levels at the increments of $5, as I have highlighted in blue. This is not an uncommon occurrence among stocks above the $25-30 price range. HS is currently trading above its previously established $45 level, and based on the pattern of HS forming important price levels at the $5 amounts, it could be expected that $50 would be the next level of resistance for HS.
The Tale of the Tape: HS is currently in a strong trend higher. HS also appears to commonly form support and/or resistance levels at the increments of $5. The trades here are clear: If HS were to pullback to $45, or break above its expected $50 resistance, a trader could enter a long position with a stop loss set under the level that was entered at. If HS were instead to turn lower and break below $45, a trader would want to enter a short position with a stop loss set above $45, with an expectation of a drop down to the next level of $35.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT