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HMO's "bust a move"

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Bullishness continues to prevail in the HMO stocks as the Morgan Stanley Healthcare Index (HMO.X) surges above our regression channel and tacks on another 3.3% gain today as sellers seem to be void in the group. Last week I thought the 530 level might serve as near-term resistance, but bullishness prevails as overhead supply is nonexistent.

What's rather impressive is that the group surges as two of its components PacifiCare Health Systems (NASDAQ:PHSY) $24.98 +10.62 and Health Net (NYSE:HNT) $26.79 +3.07% trade higher despite a Dow Jones report that Calpers (California Public Employees Retirement System) committee recommended that the agency drop PacifiCare (PHSY) (a component to the HMO.X) and Health Net (HNT) as part of an effort to tame soaring healthcare costs. The Calpers board is scheduled to vote on the recommendation today.

Morgan Stanley Healthcare Index (HMO.X) - Daily Interval

The bold break above regression tells me that there are a lot of bulls still looking for exposure to the HMO.X. This group of stocks has surpassed my near-term target of $530 and next level found would be from fitted retracement put in place back in January at the 564 level.

Trigon Healthcare Chart - Daily Interval

Shares of Trigon Health (TGH) are not as "overextended" looking as its parent index in the HMO.X and this stock may be poised for a move higher near-term. The longer-term bullish vertical count from the point and figure chart to $118 gives plenty of upside bullishness longer-term. I like the October $80 calls (TGHJP) at the market should the stock trigger a break above the $76.90 level. Short-term traders will be targeting the all time high of retracement at $81.50.

Jeff Bailey
Senior Market Technician
Option Investor

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