The stock market has had a rough week or two and most stocks seem to be breaking lower. However, there are a few stocks still maintaining an overall trend higher. In addition, there are the rare few that have hit 52-week highs. Stocks that have held their ground through the current market sell-off, and are near their 52-week highs, could be the ones that rally strongest if the market eventually does move higher.
When it comes to trading a stock hitting a 52-week high, I prefer to look for ones hitting a “NEW” high. To me, his would be a stock that hasn’t hit a new 52-week high in quite some time. In addition, and more importantly, I want the stock to have broken through a key area of resistance. One such stock that fits that description would be that of HMS Holdings Corp.
HMS Holdings Corp. provides a variety of cost containment, coordination of benefits and program integrity services for government and private healthcare payers and sponsors. HMS’s clients are state Medicaid agencies, government-sponsored managed care plans, Pharmacy Benefit Managers, child support agencies, the Veterans Health Administration, the Centers for Medicare & Medicaid Services, commercial plans, self-funded employer plans and other healthcare payers. Coordination of benefits services route claims already paid by a government program to the liable third party, which then reimburses the government payer.
To review HMS’s stock, please take a look at the 1-year chart of HMSY (HMS Holdings Corp) below with my added notations:
As you can see, HMSY has been in an overall sideways move for most of the year. Meanwhile, that stock has run into a clear resistance at $28 (red). Even though the market has caused most stocks to break lower, HMSY has broken through $28, which was breaking to both a new 52-week high and through a clearly defined resistance level. Last week HMSY pulled back down to the $28 and is currently testing it as new support (green).
The Tale of the Tape: HMSY formed a key resistance level of $28, which was a 52-week high breakout when the stock broke above it. This should signal higher prices ahead for the stock. A long trade could be entered if HMSY pulls back to $28, with a stop set below that level. If the market were to sell-off substantially, and bring HMSY back down below $28, a short position could be entered with a stop above that level.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
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