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They keep going and going and going

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Subscribers have come to call them the "energizer-stocks" that just seem to keep going higher. Who'd have thought such bullishness from a group of stocks that continued to give buy signals on their point and figure charts? Who would have though they could continue to break above retracement levels? With robust earnings in the group, the broader MARKET seems to find the "predictability of earnings" as warm and fuzzy as a pink rabbit.

HMO Index (HMO.X) Chart - Daily Interval

The HMO Index (HMO.X) has entered our upper end of retracement dating back to the February 2001 highs. Subscriber at premierinvestor.net perhaps understand our "take profits" call today on shares of Trigon Healthcare (NYSE:TGH).

Trigon Healthcare (TGH) Chart - Daily Interval

Shares of TGH came very close to our bullish target yesterday, but fell just short. Last night we decided to drop the play and have subscribers take some profits off the table under a difficult market environment for most bulls. But we aren't giving up on the group. Instead, we think traders may want to roll some profits from TGH and play an "earnings run" in PaifiCare (NASDAQ:PHSY).

PacifiCare Health Systems (PHSY) Chart - Daily Interval

In the 1990's I built a good client base just trading "networking" stock and trading the earnings runs. You could buy any networking stock about a week before earnings, let her run, sell the earnings, then rotate to the next one that would be getting ready for its earnings. It was "easy money" in those days. With strong earnings in the HMO's I'm getting flashbacks to the 1990's. PacifiCare Health (PHSY) is scheduled to report earnings next Wednesday after the close. We will note that shares of PHSY currently carry a large short position and recent action looks as if shorts are getting a little nervous. If bulls get a strong number, we could see the stock jump to our bullish target of $23. If the stock jumps above retracement, we'll roll up our retracement, but right now I like the way our retracement bracket seems to have market makers trading the levels. I also like the correlation we get with the corresponding HMO Index (HMO.X). Good sector/stock correlation going on and looking bullish.

Just because a stock/sector reaches an upper level of retracement, doesn't necessarily mean that is the end of the move. For traders, all it means is a time of near-term caution. We can always get back on board a stock like TGH, but we've been seeing some nice gains into earnings in the group and looking to play that trend.

Jeff Bailey
Senior Market Technician
Option Investor

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