Humana Inc. (HUM) reported quarterly results on Nov. 6 and extended its winning streak to 15 consecutive quarters of beating earnings per share (EPS) estimates. The stock set its all-time intraday high of $355.88 on Nov. 7, 2018, following a positive earnings report. Strength in health insurers is a sign that investors are not concerned by the prospect that a candidate calling for "Medical for All" will be the Democratic nominee for the 2020 presidential election.
Humana stock set a fresh 2019 high on Monday morning at $341.99, approaching the November 2018 high as a potential double top. The stock closed last week at $335.55, up 17.1% year to date and in bull market territory at 48.7% above its April 17 low of $225.65.
The daily chart for Humana
The daily chart for Humana shows that a "golden cross" was confirmed on Aug. 27, when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices lie ahead. This signal did not work immediately, but investors had the opportunity to buy the stock at its 200-day simple moving average.
The close of $286.48 on Dec. 31 was input to my proprietary analytics and resulted in its annual risky level at $302.30. This level was tested on July 31 as an opportunity to reduce holdings. The close of $265.30 on June 28 was the mid-year update to my analytics. This resulted in a semiannual risky level at $290.01, which was first tested on July 7. The close of $255.67 on Sep. 30 was another input to my analytics and resulted in the fourth quarter risky level at $307.96, which was crossed to the upside on Nov. 7. The close of $294.20 on Oct. 31 was the most recent input, and its monthly value level is $260.65.
When the "golden cross" continued despite the downside into Oct. 1, the stock began to leap over all levels from my analytics up to its Nov. 18 high of $341.99.
The weekly chart for Humana
The weekly chart for Humana is positive, with the stock above its five-week modified moving average of $305.11. The stock is also above its 200-week simple moving average, or "reversion to the mean," at $248.21. This key moving average held at the low during the week of April 19. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 79.76 this week, up from 72.39 on Nov. 15.
Trading strategy: Buy Humana shares on weakness to the quarterly value level at $307.96 and reduce holdings on strength to the all-time high of $355.88 set on Nov. 7, 2018.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play. The close at the end of June 2019 established new semiannual levels, and the semiannual level for the second half of 2019 remains in play. The quarterly level changes after the end of each quarter, so the close on Sep. 30 established the level for the fourth quarter. The close on Oct. 31 established the monthly level for November.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.