Latest news with #DirectionalMovementIndex
CNBC
20-05-2025
- Business
- CNBC
A dip-buying strategy for healthcare as UnitedHealth's woes hang over the sector
UnitedHealth has been a major drag on the healthcare sector, but is finally showing signs of a turnaround. This shift in sentiment is starting to show up across many healthcare securities — including the Health Care Select Sector SPDR Fund (XLV) , Humana (HUM) , Eli Lilly (LLY) , Merck (MRK) , AbbVie (ABBV) and others. While I could've chosen UnitedHealth for this trade, the stock is currently surrounded by controversies and analyst downgrades. So instead, I've decided to focus on Humana, which offers a cleaner set-up with fewer headline risks. For this trade, I'm relying on three technical indicators to build a directional bias. MACD (5,13,5) - Since the standard MACD is a lagging indicator, I've discussed using a short-term or "faster" MACD in past articles to help generate earlier entry signals. A bullish MACD crossover — where the MACD line crosses above the signal line — can act as a cue to start building positions sooner. That said, a faster MACD is more sensitive to price movements and can produce more noise, making trade management even more important. A good rule of thumb is to exit if the MACD crosses back below the signal line, which may indicate momentum is fading. In HUM's case, we saw a bullish MACD crossover on May — giving us an early signal to consider entering the trade. RSI (Relative Strength Index): This move was further validated by the RSI, which bounced off oversold territory on 5/15 and has been climbing sharply since. DMI (Directional Movement Index): The DMI consists of three components: DI+ (green line), DI- (red line), and ADX (blue line). When the DI- is above the DI+, it typically signals a downtrend. But when these lines begin to shift direction, it often hints at a potential trend reversal. In HUM's case, both the DI- and DI+ have started to turn, offering an early signal that a trend change may be underway. As broader markets rebound sharply from the recent tariff-driven correction, we're approaching a zone where resistance could start to kick in. This makes it an ideal time to consider rotating into more defensive sectors like Health Care or Consumer Staples — a smart way to balance your portfolio while locking in some protection. The Trade set-up I'm looking to take advantage of a potential upside move in HUM using a bull call spread. With the stock currently near $247, the trade involves going long the $245 call (in-the-money) and simultaneously selling the $250 call (out-of-the-money) to complete the spread. If HUM finishes at or above $250 by the June 13th expiration, the trade would deliver a full 100% return on the amount risked. This setup provides a balanced way to play the upside while keeping risk tightly controlled and clearly defined. Here is my exact trade setup: Buy $245 call, June 13th expiry Sell $250 call, June 13th expiry Cost: $250 Potential Profit: $250 You'll find many more setups like this — broken down step-by-step — in my book Mean Reversion Trading . I also share hundreds of real trade examples on my website: . -Nishant Pant Founder: Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
CNBC
29-04-2025
- Business
- CNBC
This defense stock got rocked after earnings. How to bet on a rebound with options
Northrop Grumman Corp (NOC) plunged after missing earnings expectations last week. While this was definitely material news, a look at the three-year weekly chart shows the stock finding solid footing around the $450 multi-year support level — and it's already starting to show signs of a rebound. Even though several analysts have trimmed their ratings, the median price target still sits at $545 — a lot higher than where NOC is trading right now. Also worth noting: Northrop is part of the industrials sector, and a quick glance at XLI — the Industrials Select Sector SPDR ETF — shows that the group is looking strong and actively participating in the broader market recovery rally. Technical Indicators To zero in on a trade setup, I'm layering in a couple more technical indicators to confirm the signal and improve the odds of success. RSI (Relative Strength Index): Notice that the RSI pivoted on 4/22 and is now moving sharply higher, signaling a potential shift in trend. DMI (Directional Movement Index): The DMI (Directional Movement Index) is made up of three lines: the DI+ (green line), the DI- (red line), and the ADX (blue line). When the DI- (red) is above the DI+ (green), it signals a downtrend. But when these lines start to change direction, it often points to a potential shift in the current trend. In this case, the DI- (red) pivoted on 4/22, and the DI+ (green) followed with a clear reversal on 4/25, giving even more confirmation for this trade setup. To take a bullish trade on NOC, I'm setting up a strategy known as a "bull call spread." This involves buying the $480 call and simultaneously selling the $485 call, combining them into a single trade structure The trade Here is my exact trade setup: Buy $480 call, May 30th expiry Sell $485 call, May 30th expiry Cost: $250 Potential Profit: $250 If NOC trades at or above $485 by the expiration date, this trade could yield a return of 100% on the amount risked. With 10 contracts, this equates to risking $2500 to potentially gain $2500. I dive deep into setups like this in my book Mean Reversion Trading , along with hundreds of real trade examples available on my website: . -Nishant Pant Founder: Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
