Divergence in LHC Group Stock Points to a Pullback

Shares of LHC Group, Inc. (LHCG), an at-home health care provider, have been soaring during the pandemic. The stock is up 80% from the lows it posted during the economic shutdown. It's also up 20% from the highs set before the shutdown occurred. 

As the stock trades near its all-time highs, investors may be about to get a better price to buy more shares. Looking at its price chart, this stock is in a divergence between its price and its relative strength index (RSI).

The 10-day RSI below is posting a lower low even as the stock is trying to make a higher low. The RSI is was recently in overbought territory, above 70, and is signaling for a pullback.

But the failure to stick to the uptrend in the RSI shows us that momentum is fading and that the stock is set to slip in the coming weeks. Take a look.

Chart showing the share price performance of LHC Group, Inc. (LHCG)

Every time this occurred over the past two years, the price trended lower for weeks. Each of the pullbacks highlighted by the red arrows above shows at least a 10% drop. The one earlier this year came right before a 30% crash.

Going into this divergence, we don't know what to expect, but it tells us that a pullback is increasingly likely. The stock is up more than 80% in the past few months and is now diverging from the RSI. I'm expecting a pullback of at least 10%.

As the price chart points out, the stock is still in a massive uptrend overall, so I don't think we'll see a pullback that lasts too long. At-home health care is an industry that's just beginning to boom.

The Bottom Line

The recent surge in LHC Group shares has left the stock sitting with a divergence between the RSI and its share price. The divergence is calling for a quick 10% pullback in the stock before the rally resumes.

Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.