Since early July, most hospital companies’ stocks have been rallying in anticipation of relief from uncompensated care costs under proposed health insurance reform bills. On Wednesday, however, profit taking hit the stocks in a small way.

The rally got an added boost in the last week from positive earnings reports and guidance by Community Health Systems (CYH) and Universal Health Services (UHS).

Tenet Health Care (THC) Tuesday reported a small loss on increased revenues. Lifepoint Hospitals (LPNT) reports Friday.

Health insurers’ stocks began correcting late last week and may correct some more in response to renewed uncertainty about what kind of health insurance reform legislation, if any, will make it through Congress this year.

After rallying in anticipation of a watered down health insurance reform bill, if any, health insurers and other health stocks face two or three months of uncertainty as President Obama, members of Congress, lobbyists and the public fight over what ObamaCare will be.

Markets weaken in the face of uncertainty, and the uncertainty in the health stocks markets rose late last week as the last House committee approved a bill that includes a somewhat watered down but still strong public option health plan. The Senate Finance Committee’s gang of three Democrats and three Republicans are trying to come up with a bill that would win at least 60 votes in the Senate. If they can’t, the Democrats will try to push through their health care reform in a budget reconciliation bill. But that reportedly would force them to drop a lot of health insurance reforms.

Speculators seem to be betting that a watered down health insurance reform bill won’t hurt health insurers, hospitals, drug makers or medical device and supply manufacturers.

Stocks for almost all of these health sectors and for exchange trade funds that track health stock indexes turned higher last week.

Rep. Henry Waxman (D-CA) helped depress most drug and hospital stocks Thursday with his warning that the Obama administration doesn’t feel bound by its deal with pharmaceutical companies and that Congress isn’t bound by that deal.

The markets obviously didn’t believe the White House denial that anyone working there said President Obama isn’t bound by the deal he made with drug makers, which made a vague promise to help the government save some $80 billion on drug purchases over the next 10 years.

The future of health care reform seems to be so uncertain that speculators in the stocks of health insurers, health care providers, medical device makers and exchange traded funds that track health stock indexes aren’t sure which way to turn.

On Wednesday, as expected, health insurers’ stocks lost part of the gains they made Tuesday when it looked like insurers wouldn’t face competition from President Obama’s government-run public option health plan, or government HMO. Late Tuesday, Obama reasserted his support for a public option, which is why insurers’ stocks fell Wednesday.

Health insurers’ stock prices are likely to fall Wednesday. Most of them rose smartly Tuesday on news that President Obama would accept a health bill without a public option health plan.

But not only did the left get to Obama and force him to reassert his demands for a public option health plan, or Government HMO, Senate Majority leader Harry Reid (D-NV) told Sen. Max Baucus (D-MT) that the health bill must include the Government HMO.

The Obama administration Monday backed down from its demand that Congress enact a public option health plan and said that any approach that would increase competition among health insurers would be acceptable to the president.

Good move. If Congress takes the bait, health insurers will face uncertainty instead of extinction.

The nine leading hospital company stocks are looking pretty bearish on their daily charts.

Reports and rumors in Washington late last week that the three large hospital associations are about to agree to give Congress and the Obama administration $150 billion in cost concessions over the next 10 years obviously have not been good for the hospital companies.

Health insurers fell sharply last week on news that during June, unemployment rose to 9.5%. The stocks also may be reflecting growing pessimism among investors that the Democrats' public option heath plan may still get a weak new lease on life.

It's hard to sell health insurance when unemployment is rising, and when insurance markets weaken, price wars among insurers often break out, although they don't seem to be a big problem yet.

Wal-Mart (WMT) Tuesday joined the Service Employees International Union in backing a new law that would force all employers to subsidize their employees' health insurance.

In reaction, watch the millions of employers that don't offer health insurance to their workers come out in favor of President Obama's public option health plan.

Wellpoint Health Networks Inc. (WLP) is looking like a buy to Barron's, Morningstar and some technical analysts despite the stock's sharp runup since early March. Options traders seem to be more bearish on WLP.

Better pricing in the health insurance markets and the increasing odds that Congress won't create a Medicare for all, or public option health plan that would compete with Wellpoint are all very bullish.

Worried about how President Obama’s proposed health insurance reform legislation will send interest rates soaring?

Many believe his health care reform, or ObamaCare, will be very inflationary along with the already enacted stimulus bill. The inflationary concerns related to proposed universal health legislation came up during an interesting and pretty balanced discussion today on Politico.com about the obstacles facing Obama’s health care legislation. The thread is pretty representative of the health care policy debates that have been going on over the last 35 years.

Barron's Bob O'Brien notes that GM's pending bankruptcy, which is expected to be filed early next week, will force the company out of the Dow Jones Industrials index.

He reports on several companies that are being mentioned as possible replacements for GM and Citigroup (C). They include Wells Fargo (WFC), Goldman Sachs (GS), Google (GS), Visa (V) and Ross Stores (ROST), among others.

I think the market will continue to correct. But while several indicators and charts for Caterpillar (CAT) and the market are flashing warning signals, the charts aren’t definitely saying sell, yet. Longer-term, the options markets and at least one analyst seem to be bullish on CAT.

So I think that if CAT falls to around $25 or $27, it would be a good long-term buy with close stops. It closed Friday at $31.34.

Do you believe Secretary of Treasury Tim Geithner's explanation of what the Obama administration is trying to do with its stress tests of the nation's 19 largest banks?

He explains his attempts to save the financial system in this NY Times op-ed.

When will the stock and bond markets begin to reflect the huge changes in bankrutpcy and contract laws that President Obama has demanded and is demanding from Chrysler’s bondholders?

After reading numerous comments on Chrysler’s filing for Chapter 11 bankruptcy, it’s clear that lawyers, investors and bond buyers are very worried about how the president is blaming and bullying Chrysler’s creditors for the company’s bankruptcy.

Bank regulators are trying to make the 19 largest banks keep the results of their stress tests secret until the government releases the findings on May 4. The banks were told the results of their notorious stress tests Friday.

But there are no secrets on Wall Street, except where individual investors like me are concerned.

Sometimes long-term investors let their common sense get in the way of making a good trade, and, so far, that's what seems to be happening with Oracle (ORCL).

After ORCL announced that it is buying Sun Microsystems (JAVA) for some $7.4 billion, I and many others bought ORCL, although that's not usually a smart thing to do after a company announces an acquisition, especially a questionable one like this one. The prices of the stocks of acquiring companies often fall after deals are announced because something like 70% of such deals don't benefit the acquiring shareholders over the long term.

Mexico is in a panic over swine flu, and other countries may not be far behind. What will this mean for stocks? Even though fewer than 2,000 people have been identified as swine flu victims so far, the panic is beginning to affect world commerce.

That's not good news for stocks.

Barron's explains how to use covered calls to generate income lost when a company cuts its dividend, as many banks and companies have over the last couple of years.

Since Barron's used US Bancorp (USB), a stock I own, as its example, I'll use it, too. And I'll comment on the article.