Occasionally I run a stock screen that turns up a stock that is a perfect example of how technical analysis works. United Health Group (NYSE: UNH) has been in a sideways pattern since bottoming in October, 2008. Basing patterns of this nature tend to produce incredibly powerful breakouts, and I believe UNH just broke out. Let’s take a look at some charts:

The chart below shows several touches of the resistance around $30 for UNH. if you were to back this out to a 2 year chart, you’d see a couple more touches of this line. Needless to say, $30 is an incredibly important level for UNH. Several key things happened today along with the price breakout that makes UNH attractive.

1. A huge volume spike on the breakout
2. Bullish cross overs on both the fast and slow MACDS
3. Bullish cross on the 3-10 momentum oscillator
4. A breakout on On Balance True Range.

I want to call your attention to the last indicator. It’s one I use frequently to confirm MACD signals, and it works amazingly well. Tom Bierovic developed OBTR to improve upon on balance volume.  It solves the primary issues with OBV in that volume indication lags until the next days open. The second problem is that OBV doesn’t handle gaps well, as there isn’t any volume associated with the price movement. OBTR utilizes True Range which has a high correlation to volume. He simply replaced volume with true range to create OBTR.

According to Tom:

For my own trading, I calculate a nine-period Exponential Moving Average(EMA) of OBTR and use OBTR crossings of the EMA to confirm divergences between price and oscillators (e.g. MACD, RSI, and Stochastics). Bullish divergence occurs when a market makes a low, rallies, and then declines to a lower low,while an oscillator makes a low, rallies, and then declines to a higher low.Bearish divergence occurs when a market makes a high, declines, and thenrallies to a higher high, while an oscillator makes a high, declines, andthen rallies to a lower high. Divergence is a clue – an early warning sign that the trend might change very soon, but we must wait for the market itself to tell us which divergences to act upon and which to ignore. Waiting for OBTR to cross its EMA before you buy or sell will filter out many unprofitable oscillator signals.

Based on that definition, there is a huge divergence between OBTR and price, and we have a confirmation of the MACD buy signal in that the OBTR crossed over its EMA.

Two Green Triangles for the Price of One:
For Marketclub members, you are seeing something incredibly powerful on the chart of UNH in that a new green monthly and weekly triangle appeared on the same day! It’s amazing how accurate and timely a signal the trade triangles can be!

This Is Why I Run Stock Screens
I found UNH by running the Marketclub Smart Scan (affiliate link) for new monthly trade triangles. If you haven’t checked out marketclub yet, I highly recommend you head over there now and check out everything that you get!

I also found UNH on 2 of my highly specialized and proprietary stock scans, as well as the Record Price Breakout screen that I publish publicly on this blog. With this confluence of technical bullishness, UNH could end up being an amazing trade.

note: Enter UNH above yesterdays high, or for a more conservative strategy, wait for a retest confirmation of the $30 level.

To Profitable Trades,

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