In this article I will be analyzing Catamaran Corporation (NASDAQ:CTRX) from a technical perspective. Here is a brief overview of the company VIA Yahoo! Finance.
"Catamaran Corporation provides pharmacy benefit management PBM services and healthcare information technology HCIT solutions to the healthcare benefits management industry in North America. Catamaran Corporation was founded in 1993 and is headquartered in Lisle, Illinois." finance.yahoo.com/q/pr
I will not go into the fundamentals here, but I will mention the next earnings announcement will be on July 29th. Here is the chart.
(Above is 1 day chart dating back to October 2011, courtesy of freestockcharts.com)
Trend-lines & Moving Averages
CTRX has been trading within an upward-sloping trend channel since summer of 2012. The lower trend-line, currently at about $49.90, has been tested 3 times before, and was tested again today as it provided some support for the price. The upper trend-line has been tested twice and is currently around $60.
The 200 day moving average is currently at about $49 and may also provide some support for the price.
Volume & OBV
Volume has been relatively stable for most of the uptrend since the spike in April 2012. Since this says very little about future price movement I use the OBV to dig deeper.
Since January of 2013 the OBV has found support at the same level, and each time it has been tested it has given a profitable buy signal, each time the price reaching the top of the channel shortly after. The OBV gave another buy signal today when it touched its support level, and should be profitable if the trend stays intact.
RSI & ROC
RSI and ROC are both momentum indicators that can provide buy signals during uptrends. Momentum indicators work best when the security is trading within a trend, and when the trend is up they often find support at the same level. When this support level is tested is often a great entry point assuming the trend stays intact.
The support for the RSI is around 40, and each time the RSI value dropped below about 42 the price went up, almost always reaching the upper trend-line before coming back down to test the lower one. The RSI gave a buy signal on Friday May 17th as the RSI dropped below 42, and is still giving a buy signal today at a closing value of 36.41.
The ROC has found support at the same level as well, and each time this support has been tested the price changed directions. The ROC support was also tested on Friday the 17th and continues to give a buy signal today.
The trend-lines are the backbone of this trade, but the volume and momentum indicators confirming the signal is very encouraging. The trend appears very credible and likely to continue, so a trade based on the continuation of this trend is logical. As all the indicators are currently giving buy signals, and the stock is trading at the lower trend-line, now is a good time to place a bet that the trend will continue.
An entry point is only half of the trade, however, and an exit strategy is always needed. Since CTRX is trading near all-time highs, there are no historical support/resistance points to look to for exit points. Thus we must rely on the trend and the indicators to determine that instead. The most appropriate short term price target exists at the top of the channel, currently around $60, but if the RSI is not yet above 70 and volume starts to increase, it may pay off to hold on for longer.
Place a buy limit around the current price $49.93. A stop loss can be placed below the 200 day moving average at around $48.80, which is also below the lower trend-line. Of course a lower stop can be placed to decrease the chances of getting stopped out, but the increased capital at risk usually isn't worth the slightly improved chance of success.
A short term price target at exists at the upper trend-line, currently about $60. This moves up over time, however, and is a fairly conservative exit point. Although the RSI can help determine an exit point when it exceeds 70, it is a riskier exit strategy because you may decide against selling at the top of the channel and be punished by watching it fail to break resistance. Another reason to sell at the top of the channel regardless of the RSI value is because we are betting on the continuation of the trend, not an upwards breakout. Therefore an exit point consistent with the trade setup exists at the top of the trend channel, and should be adjusted higher as time goes on. This provides an attractive risk/reward setup and prevents you from holding a stock that's moving sideways for a long period of time.
Thanks for reading and good luck improving your alphas!
Disclosure: I am long CTRX.