Health Stocks Diverge From Market, Finish in the Red

Despite healthy gains in indices across the board, health care stocks Humana HUM, Aetna AET, Unitedhealth Group UNH, and CIGNA CI all finished lower in Thursday's trading session. The S&P Health Care Sector, which has been one of the strongest areas of the index over the past six months, was the weakest area of the market in Thursday's session, losing 0.1% on the day. Despite today's loss, all four of these stocks are still trading near their 52-week highs, but today's divergence may mark the beginning of a significant downside correction. Humana finished down 2.2% from Wednesday's close to $81.74. The stock hit a 52-week high of $84.32 on July 6th. Aetna finished down 1.1% from Wednesday's close to $44.40. The stock hit a 52-week high of $46.01 on May 19th. UnitedHealth Group UNH finished down 0.9% from Wednesday's close to $52.63. The stock hit a 52-week high of $53.50 in today's session, but was quickly sold off into negative territory. CIGNA finished down 0.4% from Wednesday's close to $51.83. The stock hit a 52-week high of $52.50 in today's session, but was quickly sold off into negative territory. ACTION ITEMS:

Bullish:
Investors who believe that this pullback is a temporary move may want to consider the following trades:

• For all of the Health Care Stocks listed in this article, waiting for a retracement back to areas such as the 50-day simple moving average (one year daily chart) to begin legging into the trade is a prudent idea.

• For Humana, the 50-day simple moving average is currently at $78.81 – 3.5% lower than the stock's current price

• For Aetna, the 50-day simple moving average is currently at $43.41 – 2.2% lower than the stock's current price

• For Unitedhealth, the 50-day simple moving average is currently at $49.92, 5.1% lower than the stock's current price

• For CIGNA, the 50-day simple moving average is currently at $48.93 – 5.6% lower than the stock's current price.

Bearish:
Investors who believe that today's divergence is the beginning of a significant downside move may consider these alternate positions:

• For Humana, entering a short position at current levels, with a stop above the 52-week high of $84.32 looks good on a risk versus reward basis. The initial downside target would be the stock's previous support at $76.85.

• For Aetna, entering a short position at current levels, with a stop above the 52-week high of $46.01 would be a good way to play it. The initial downside target would be the stock's previous support at $41.88

• For Unitedhealth, entering a short position at current levels, with a stop above the 52-week high of $53.50 has a good risk/reward ratio. The initial downside target would be the stock's previous support around $50.15.

• For Cigna, entering a short position at current levels, with a stop above the 52-week high of $52.50 looks like a good way to go. Shares showed some strength towards the end of Thursday's session. For that reason, bears might want to wait for a break below today's intraday low of $51.21 before entering. The initial downside target would be the stock's previous support at $48.10.

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