UnitedHealth Group Stock Surges Above $230 in 2019 After Strong Q3 Performance

UnitedHealth Group Incorporated (UNH), a key Dow component, surged over 5% at the start of Tuesday trading after surpassing third-quarter earnings expectations by $0.12 per share and reporting revenues in line with forecasts. This upward movement brought the stock back to resistance levels above $230 last seen in September, marking a notable rebound after a month of declines. Despite this rally, technical indicators remain cautious amid ongoing market volatility.

For 2019, UnitedHealth raised its earnings per share (EPS) guidance, signaling another profitable year ahead. However, the company faces significant challenges as the 2020 election approaches. Democratic presidential candidates have proposed sweeping healthcare reforms, including "Medicare for All," which could disrupt the private healthcare sector. Historically, as seen during President Obama's first term, passing such reforms is difficult due to strong industry influence on lawmakers.

In July, UnitedHealth executives publicly cautioned that implementing a single-payer system could "destabilize the healthcare system," comments that contributed to a market selloff and pushed the stock down to support levels near $200, last seen in 2017. While recent gains indicate a two-week recovery, substantial buying momentum will be necessary to return the stock to a sustained bull market trajectory.

Long-Term Performance of UNH (1988 – 2019)

After a multi-year downtrend bottoming at a split-adjusted $0.08 in 1988, UNH embarked on a steady uptrend that peaked above $8.50 in early 1996. Attempts to rally in 1998 faltered, leading to a trading range that broke upward in 2000. The stock then advanced through the dotcom bear market, reaching mid-$60 levels by 2006 before entering a decline accelerated by the 2008 financial crisis. Despite this, it maintained support above its 2000 breakout point, setting the stage for a robust recovery that culminated in a breakout in 2013 and a strong uptrend into the new decade.

The all-time high of $288 was reached in December 2018, followed by a selloff to $232 by year-end. April 2019 saw the stock dip below this low, signaling early signs of weakness, and a lower high was recorded ahead of the second-quarter earnings release. These developments have weakened the previously strong technical outlook, suggesting the stock may be navigating a long-term top formation.

Technical analysis shows the monthly stochastic oscillator entering a sell cycle at the start of 2018, forming a bearish five-wave pattern that has yet to reach oversold territory. This indicates the correction that began in late 2018 may persist, with potential support near the 50-month exponential moving average (EMA), currently rising around $200.

Short-Term Chart Analysis (2017 – 2019)

Since October 2017, the stock has formed a bearish head and shoulders pattern with horizontal support near $210. To reverse this trend, UNH needs to surpass the mid-summer peak of $269. Conversely, a drop below the neckline could trigger significant sell-offs, potentially driving the price below $150. The proximity of the 50-month EMA just below current support adds complexity, raising the possibility of a bear trap if a breakdown occurs.

The on-balance volume (OBV) indicator peaked in November 2018, ahead of the price peak, and again during the first-quarter bounce. Aggressive selling then pushed OBV to an 18-month low in April, with a gradual decline continuing. While Tuesday's strong price action may influence this trend, caution is advised before initiating new positions.

Conclusion

UnitedHealth Group’s stock has rebounded strongly after a solid third quarter and optimistic earnings guidance. However, significant political headwinds related to healthcare reform proposals ahead of the 2020 presidential election warrant a cautious approach for investors considering new purchases.

Disclaimer: The author did not hold any positions in the securities mentioned at the time of publication.

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