Drug store giant CVS Health Corporation (CVS) set its all-time intraday high of $113.65 in July 2015 and has been below its "reversion to the mean" since the week of Nov. 4, 2016. My definition of the "reversion to the mean" is the stock's 200-week simple moving average, which ended last week at $86.16. CVS shares ended last week at $73.09, up just 0.8% year to date and in correction territory at 12.9% below the 2018 high of $83.88 set on Jan. 29. The stock has a favorable P/E ratio of just 10.04, and since its 2018 low of $60.14 set on March 17, the stock is in bull market territory, up 21.5%.
Analysts expect CVS to post earnings per share between $1.68 and $1.73 when the company reports results before the opening bell on Tuesday, Nov. 6. Investors will be listening to guidance as the pharmacy giant prepares to complete its deal to purchase healthcare insurer Aetna Inc. (AET). Of interest is whether CVS plans to expand the use of its Minute Clinic store feature, which is included in only around 10% of store locations. This should be a priority as the company integrates healthcare plans through Aetna. Investors should look for continued growth in same-store sales for prescription drugs.
The daily chart for CVS Health
The daily chart for CVS shows that the stock began the year with a bear market decline from its 2018 high of $83.88 set on Jan. 29 to its 2018 low of $60.14 set on March 27. The stock moved sideways after this decline, and a "golden cross" formed on Sept. 10, when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices would follow. This led to a secondary high of $80.56 set on Oct. 1. When a stock is above a "golden cross," buying weakness to the 200-day simple moving average is the strategy, and this level was last tested at $69.93 on Oct. 29. The stock is above my monthly value level for November at $70.80, as shown by the horizontal line on the chart.
The weekly chart for CVS Health
The weekly chart for CVS is negative, with the stock below its five-week modified moving average of $74.04 and below its 200-week simple moving average, or "reversion to the mean," at $86.16. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 64.00, down from 73.54 on Oct. 26.
Given these charts and analysis, investors should buy CVS shares on weakness to my monthly value level of $70.80 and reduce holdings on strength to the 200-week simple moving average of $86.16. My quarterly value level lags at $61.16.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.