The shares have retreated after every other signal over the past three years
Cardinal Health Inc (NYSE:CAH) was among the drug distributors that catapulted higher yesterday, after the Trump administration withdrew a proposal that aimed to end rebates paid to pharmacy benefit managers. As such, CAH stock yesterday rallied to its highest point in nearly two months. However, if recent history is any indicator, today's pullback could be just the beginning for the healthcare stock, suggesting traders may want to take profits.
Specifically, yesterday's surge took Cardinal Health shares right into their 200-day moving average, which handily rejected the equity's rally attempts earlier this year. According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been five other times in the past three years when CAH tested resistance at its 200-day, following a lengthy stretch below the trendline. After those signals, CAH was lower a month later 100% of the time, averaging a loss of 6.94%.
At last check, CAH was already down 2.4% to trade at $47.11. The security has been in a channel of lower highs since peaking at $58.31 in mid-November, with support emerging in the $42-$43 area. From current levels, another 6.9% decline would put the shares around $43.80 -- back in the red year-to-date.
Traders expecting another slide for CAH should consider speculating with short-term options, which are attractively priced at the moment. The security's Schaeffer's Volatility Index (SVI) of 25% is in just the 14th percentile of its annual range, suggesting near-term option premiums are pricing in relatively modest volatility expectations for Cardinal Health stock.