Community Health Systems, Inc. (CYH +$0.05 or +0.14% to $36.95) positively reversed on nearly double normal turnover today. This stock was first featured on May 2nd, 2005 in the CANSLIM.net's Mid-Day Breakouts Report (read here) at $36.36, $0.29 cents below its closing price today. Before the recent pullback this issue rallied only as much as +12% since it was featured. A number of hospital related issues have recently been struggling, and group action definitely has a significant impact on stocks. Also, there have been several technical sell signals that have been triggered since this issue broke out, allowing investors to protect their gains. Two important sell signals were when the 50 DMA and 200 DMA lines were breached. This issue still has a massive amount of overhead supply or resistance to work through in the $37-40 range, however Tuesday's action included a positive reversal, which was definitely a step in the right direction. The stock appears to be attracting support near its longer term 200 DMA line and above important prior chart lows. Its Relative Strength rank has fallen to a mediocre 55, indicating that many issues are outperforming it.
A very important trait to look for when buying stocks is to find a leading stock in a leading group. The reason why this is important is because stocks tend to move in groups. Another important angle for group action is on the downside. Whenever a group falls out of favor and its relative strength begins to tank, look out, because the vast majority of stocks within that group will likely move lower.
Community Health Systems, Inc. (CYH -$1.08 or -2.82% to $37.25) gapped lower on Tuesday alongside the majority of stocks in its group. Hospital shares were widely lower on Tuesday, facing pressure from Lifepoint Hospitals Inc.'s (LPNT -18.87%) lower-than-expected outlook and one analyst's warning that the sector as a whole faces challenges in 2006. Lifepoint shares hit a new 52-week low of $28.57 in afternoon trading on the Nasdaq at more than 12 times their average volume, down from a 52-week high of $51.54 in July. This underscores the importance of limiting losses at 7-8%, as LPNT was once among the Leaders List. SSY, HCA, USPI, HMA and UHS are among several stocks in the Medical-Hospital group that got hammered today. This demonstrates the importance of monitoring group action.
A closer look at CYH reveals that its late-November advance into new high ground had lacked volume, and the stock had gradually drifted back down into its prior base. Yesterday's action was a particlarly bad reversal at an important level chart-wise, and included a weak close at its lows and under its 50-day moving average (DMA) line. Today's gap down also included a 200 DMA violation, however it fought to close above that important long-term average. Still, the technical damage to its chart may be expected to take a longer time to repair, and meanwhile a fresh new breakout might be expected to yield better results.
