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HMO's breaking to new highs

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Shares of HMO Index (HMO.X) 652.61 +3.09% component WellPoint Health Network (NYSE:WLP) $83.83 +7.5% are breaking to yet another 52-week high today and leading the HMO.X to yet another 52-week high after Prudential raised its bullish target on the shares to $90 from $72, based on the firms belief that WellPoint (WLP) continues to see strong enrollment growth.

Yesterday, after the close, WellPoint raised its 2002 earnings guidance to $4.30 from $4.00 based on strong medical membership growth in the company's key geographies and assumptions that the continuation of the current economic conditions will persist.

WellPoint Chart - $1 box

WellPoint (WLP) gave the "bearish signal reversed" pattern May 29th at the $73 level and the stock is boosted higher today after the company upped guidance and Prudential raised its price target on the stock. A couple of weeks ago, we talked about this rather "rare" pattern and when found, bulls should be looking to play it long. According to Professor Davis' study, the "bearish signal reversed" is the highest probability pattern for bulls as it has shown profitability 92% of the time, for an average gain of 23.2% in just 2.5 months. From $73 (where pattern was generated) bulls will be targeting the $89 level near-term. Bulls looking for any new exposure to the stock should look for entry near the $80 level should a pullback occur. Stock continues to look bullish as it trades above trend and longer-term bullish count now grows to $116.

HMO Index Chart (HMO.X) - Daily Interval

A couple of weeks ago I mentioned that "healthcare was heating up" and today's action in the HMO.X is perhaps indicative that boiler plate has become. Bulls in the group will be correlating some of the aforementioned HMO stocks with the index at the $666 level near-term. This is perhaps more important for those bulls holding June expirations calls.

HMO Index components once again are (AET, CI, CVH, FHCC, HNT, HUM, MME, OHP, PHSY, TGH, UNH, WLP).

Jeff Bailey
Senior Market Technician
Option Investor

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