UnitedHealth Group Incorporated (UNH) beat earnings per share (EPS) estimates when it reported results on July 15. The stock stayed below its monthly risky level at $311.27 but stayed above its annual pivot at $297.29. The managed health care giant and component of the Dow Jones Industrial Average extended its winning streak of beating EPS estimates to 27 consecutive quarters.

The stock closed Tuesday, July 21, at $305.11, up 3.8% year to date and just 2.9% below its all-time intraday high of $314.28 set on June 8. UnitedHealth is in bull market territory at 62.5% above its March 23 low of $187.72. The stock has a P/E ratio of 16.30 and a dividend yield of 1.65%, according to Macrotrends.

Consumers looking for health insurance from UnitedHealth should be aware that individual coverage for those under 65 years old will likely be written on three-month intervals. Premiums are revised based upon your claims history. A major focus of UnitedHealth is providing supplemental insurance for patients covered by Medicare. This includes prescription drug coverage. To qualify for these plans, you must also be a member of AARP.

The daily chart for UnitedHealth

Daily chart showing the share price performance of UnitedHealth Group Incorporated (UNH)
Refinitiv XENITH

The daily chart for UnitedHealth shows the formation of a golden cross on Nov. 29, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices would follow. This tracked the stock to its Feb. 19 high of $306.71.

UnitedHealth stock gapped below its annual pivot at $297.29 on Feb. 24. The stock broke below its 200-day simple moving average on March 13, plunging to its March 23 low of $187.72. The V-shaped bottom saw a return to the 200-day simple moving average on April 7. The stock returned to its annual pivot at $297.29 on April 16. This level was a strong magnet between April 16 and July 14, as it was crossed several times.

After UnitedHealth tested its all-time intraday high of $314.28 on June 8, the stock slumped to a test of its annual pivot at $297.29 on June 15. This led to the post-earnings high of $310.97 set on July 17. This is below the monthly risky level at $311.27. The stock is above its 50-day and 200-day simple moving averages at $296.80 and $277.52, respectively.

The weekly chart for UnitedHealth

Weekly chart showing the share price performance of UnitedHealth Group Incorporated (UNH)
Refinitiv XENITH

The weekly chart for UnitedHealth is neutral, with the stock above its five-week modified moving average of $296.24. The stock is also above its 200-week simple moving average, or reversion to the mean, at $231.11.

The 12 x 3 x 3 weekly slow stochastic reading is projected to slip to 67.01 this week, down from 68.31 on July 17. During the week of Jan. 17, this reading was above 90.00, putting the stock in an "inflating parabolic bubble" formation. Bubbles always pop, and this one did, pushing the stock to its March 23 low.

Trading strategy: Buy UnitedHealth stock on weakness to its quarterly value level at $278.44. Reduce holdings on strength to its monthly risky level at $311.27. The annual pivot at $297.29 remains a magnet.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. The annual levels remain on the charts. The monthly level for July was based upon the last nine monthly closes, the third quarter level was based upon the last nine quarterly closes, and the second half 2020 level was based upon the last nine mid-year closes. New weekly levels are calculated after the end of each week.

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.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.