Tickers in this Article: HUM, HNT, CI, HS
Healthcare stocks have been holding up well through the recent correction in the general markets. Rather than falling apart like the vast majority of stocks, this sector has been pulling back in an orderly manner. As a group, these stocks have been surprisingly stable considering the possible uncertainty as to the ramifications of the recently passed healthcare bill. Most of these stocks are trading in a channel and remain above their 200-day moving averages, which is respectable considering the dismal performance that even some market-leading stocks have been experiencing. IN PICTURES: 20 Tools For Building Up Your Portfolio

Humana (NYSE:HUM) is a good example of a healthcare stocks that has been correcting in an orderly manner. HUM began a consolidation after reaching all-time highs in January. The consolidation has been following a clear channel and recently held support near $44. It bounced off this level and attempted to break out above the channel a few days ago. It is now in the process of trying to find support near its 20-day moving average. If it can hold here and turn back higher, it will likely clear the channel and test its recent highs.

Source: StockCharts.com


Health Net (NYSE:HNT) is another healthcare stock that has been trading in an orderly channel as it corrects from its highs set earlier this year. While I haven't been a proponent of ignoring the wide ranges set during the recent "flash crash", HNT is a good example of a stock were I am doing just that. If you throw out the data from that day, HNT has managed to stay in a four-point range the past several months. The $26.70 level has clearly been difficult for this stock, and will be the level to watch for a breakout. (For more, see The Anatomy Of Trading Breakouts.)

Source: StockCharts.com


CIGNA Corporation (NYSE:CI) has also been trading in a channel, although the swings have been a little more volatile than the others. CI began the correction in January as well after reaching all-time highs. It found support near $32, and any drops below this level quickly found buyers. $36 will be the first level to watch on the upside, while $38 is the level that is likely to signal a breakout.

Source: StockCharts.com


Healthspring (NYSE:HS) is one healthcare stock that I would likely avoid, despite also trading in a channel as it corrects. Despite the fact that HS has managed to stay in a channel, there are enough warning signs here to put the consolidation in doubt. Notice how sharply HS has dropped on the past two breakout attempts. Another warning sign is how volume has increased in the far right side of the base. The ideal base would have a surge in volume on the left side as the stock rallies, and declining volume as the base builds. Despite the warning signs, a close above $19 would be a very positive development. On the downside, a move below $16 is likely to lead to a test of $15 and possibly a full-fledged breakdown.

Source: StockCharts.com


Bottom Line
It is important to note that the existing market environment remains very dangerous for traders looking to buy stocks, and that the stocks mentioned here remain in a consolidation. While they may not be ready to break out, they are worth watching as the patterns they are building are very clear. The healthcare stocks have held up very well when compared to other groups, and could clear their channels if the markets can somehow find support at these levels. Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

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