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HMO stocks see reversal lower after Florida judge ruling

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Health Maintenance Organization (HMO) stocks have seen earlier session gains turn into losses this afternoon after a Florida judge lifted the stay in an HMO class action suit, effective September 30. Prudential is commenting that the ruling may have been interpreted as moderately more negative than expected and today's decision is a clear negative for the group.

In a separate note, there have been rumors floating around the trading floors and desks that the ruling could open the door to tobacco-size lawsuits in the near future.

Stocks in the group that have seen some reversals in the past hour have ATH $65.65 -4.3%, CI $84.66 -1.93%, HNT $21.24 -1.2%, HUM $12.10 -2.26%, OHP $38.92 -1.36%, PHSY $23.00 -3.19%, UNH $84.14 -3.45% and WLP $69.02 03.46%.

Shares of Coventry Health Care (NYSE:CVH) $29.20 +12% are bucking the sector trend after the company posted net income of $36.6 million, or $0.60 a share, which handily beat estimates of analysts looking for earnings of $0.48 a share. Deutsche Bank analyst Eric Veiel said in a research note that "Coventry's tremendous out performance was almost entirely due to much lower than expected medical costs." Mr. Veiel raised his EPS estimate to $2.20 from $2.00 for 2002 and to $2.50 from $2.30 for 2003. He also increased the share price target to $40 from $37.

As we near the end of today's trading session for stocks, we'll note that Treasuries continues to see selling in the shorter maturies as the 5-year YIELD ($FVX.X) 3.613% edged higher from yesterday's closing YIELD of 3.562% and the benchmark 10-year YIELD ($TNX.X), which is more intermediate term also found selling into its close with a closing YIELD of 4.581%. Only the longer-term 30-year Treasury ($TYX.X) saw its YIELD fall marginally from buying at 5.395%.

This action has stocks holding firm in what has been a rather seesaw day.

The Dow Industrials (INDU) 8,674 -0.42% have been above and back below yesterday's close for the bulk of the session. The same has been true for the S&P 500 Index (SPX.X) 902.17 +0.35% as traders digest recent gains. The NASDAQ Composite (COMPX) 1,339 +0.32% has seen a rather tight trading range of 41 points the entire session as traders have been unable to sustain any type of intraday move for more than a couple of hours.

Breadth has turned positive on the NYSE with advancers now having a slight 17 to 15 edge, while NASDAQ breadth is just about a dead heat, with decliners slightly outnumbering advancers by a 17 to 16 margin.

In essence, a very mixed session ahead of tomorrows closely watched Q2 gross domestic product (GDP) data. Economists are looking for a 2.6% gain, after the surge to 6.1% in the first quarter.

Jeff Bailey
Senior Market Technician
Option Investor

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