Bought Some SUNH

You would think that my buying Sun Healthcare Group, Inc. (SUNH) this morning at the open had something to do with the passage of the healthcare bill. Well, long ago I came to the conclusion that we humans are just not intelligent enough to invest based on the news--well, most of us. Case in point, I heard all day today that there weren't huge downside moves in the healthcare stocks because the news was "baked in." That's what's used when "sell the news" doesn't work.

This one is primarily a chart play.

Fundamentals

I picked this one off a screen on Finviz.com that shows PEG ratios below 1, and it's .9 or so. Good enough for government work, but not too exciting--much better than the industry average at 1.25. However, the stock caught my eye on the charts, and I'm going with it because I just love the pattern on the weekly. Operating margins are slightly better than the industry average. P/E ratio of 12 beats the industry average of 16 nicely. Overall, not a bad showing, but the stocks I usually choose are usually more glitzy on the valuation front.

Technicals - Weekly

I like this one mostly for the pattern itself. This is a bullish flag formation (bullish because it is sloping downward before the breakout), about a year old, a good long time. Can't remember who it was who said sharp indecision resolves itself sharply. So the longer you see a stock bouncing around in this formation, the greater and more pronounced the move after price breaks out of the formation. This is Friday's chart. Today, the stock was up over 6%. You can see that in general, this is an even tug-of-war by the sellers and buyers by looking at the accumulation/distribution line. Notice how the A/D line is relatively flat as price slopes downward. This means that there really is an even fight going on, despite the fact that the price is biased toward the downside. RSI and Stochastics tell me next to nothing on this one on the weekly chart.

Technicals - Daily

Like last week's stock, this one is ripe for a short-term pullback, frankly. The relative strength index (RSI) was already overbought this morning. Being up 6% is putting it in nicely overbought territory now. But having a 3-month trading horizon on all my holdings, I don't mind too much buying something that might pull back because I only buy on Monday mornings, and the best stock I can find on a weekly chart is the best stock I can find, period. So this one will pull back over the next couple of days, maybe resuming to the upside and pulling back again very shortly thereafter. Net-net, I don't expect to be up double digits on this 2 weeks from now. Stochastics don't look great either. When they diverge in overbought territory (80+), fall out of overbought, and then rise back into overbought, diverging again, that's when you are ripe for a pullback. If you follow the stochastics from the beginning of my red line to the end and compare to price, you will see that's happened. The price relative to the Wilshire 5,000 general sloped upward, outperforming the market recently, and then we see a nice breakout from that tight range. One of the nicer things is that the A/D line is screaming upward as the stock is consolidating into it's bullish flag.

Thanks so much for reading, as usual!

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