UnitedHealth's recovery rally has more room to run, says Katie Stockton

UnitedHealth (UNH) has experienced a nearly 50% sell-off driven by recent news, breaking below long-term support at $447, but technical indicators now suggest a potential short-term rebound. According to Fairlead Strategies, a daily counter-trend signal indicates downside exhaustion and oversold conditions, potentially offering an opportunity for long-term holders to reduce exposure during a relief rally toward initial resistance near $447. The healthcare sector, including names like Amgen (AMGN), is also showing signs of downside exhaustion and could see improved relative performance in a weaker market.

Analysis

UnitedHealth (UNH) has experienced a substantial price decline of nearly 50%, including two news-driven gaps-down over the past month that pushed the stock below its long-term support level near $447, thereby inflicting significant damage on its long-term technical outlook. Despite this deterioration, current technical signals, notably a daily counter-trend alert from DeMARK Indicators, point towards downside exhaustion and oversold conditions for UNH, suggesting a potential for a short-term rebound with initial resistance identified at the former support level of approximately $447. This underperformance extends beyond UNH, as the broader healthcare sector has demonstrated both short-term and long-term weakness. Key sector constituents such as Amgen (AMGN), Eli Lilly (LLY), Merck (MRK), and Regeneron (REGN) exhibited bearish reversals late last year, while others like Johnson & Johnson (JNJ) and Pfizer (PFE) have continued their secular downtrends. Presently, these healthcare stocks are individually showing signs of downside exhaustion, and given the sector's defensive characteristics, their relative performance may improve in a weaker market environment. Amgen (AMGN), for example, is oversold from an intermediate-term perspective, both absolutely and relatively, having retraced to a long-term support area near $260, with DeMARK Indicators suggesting a minimum four-week stabilization period that could foster relative improvement against the S&P 500 Index. The overall market sentiment for this news is neutral (0.1) with a cautious tone, though per-ticker sentiment for UNH (0.2) and AMGN (0.3) is slightly positive, aligning with the technical possibility of a bounce from oversold levels.

Key Decisions for Investors

• Long-term holders of UnitedHealth (UNH) might view any short-term rebound towards the initial resistance at $447 as an opportunity to reduce exposure, considering the significant impairment to its long-term technical structure.