UnitedHealth (UNH) experienced a significant 16% increase following an impressive earnings beat despite the cyberattack on its subsidiary, Change Healthcare. However, as broader market indicators begin to show signs of weakness, cracks are starting to appear in UNH’s once-strong rally. The stock is now showing signs of losing steam, prompting a closer look at its performance.
To confirm a bearish bias on UNH, two key technical indicators are being utilized. The Relative Strength Index (RSI) is indicating a loss of upward momentum as it begins to curve downwards. Additionally, the Directional Movement Index (DMI) is showing a possible change in the current trend as the DI lines start to shift. Another significant indicator is the Average Directional Index (ADX), which measures the strength of the current trend and has been consistently dropping as UNH’s rally continues.
The author of this analysis is implementing a bear put spread strategy as a trade structure. By buying a $495 put and selling a $490 put for the May 10 expiry, the trade is set up to capitalize on a potential downturn in UNH’s stock price. The cost of this trade is $2.50, with the goal of doubling the investment if UNH falls to $490 or below on the expiration date. The strategy also includes a risk management approach, with a plan to close the trade if a 50% loss on the investment is reached, ensuring that winning trades offset potential losses effectively.
As UnitedHealth’s rally shows signs of weakness and potential reversal, it is essential for investors to consider the technical indicators and trade setups outlined in this analysis. By closely monitoring the RSI, DMI, and ADX, traders can make informed decisions regarding UNH’s future performance. Implementing a bear put spread strategy with careful risk management can help optimize gains and protect against losses in a changing market environment.
The analysis suggests that UnitedHealth’s rally may be losing steam, and investors should proceed with caution when considering their positions in the stock. By utilizing technical indicators and a strategic trade setup, traders can navigate market fluctuations and potentially profit from UNH’s changing trends. With a focus on risk management and informed decision-making, investors can adapt to the evolving market conditions and maximize their returns.