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Tenet Health Care

07/01/13 03:29:49 PM
by Koos van der Merwe

With the Affordable Care Act on the cards, and the stock market showing signs of recovery, health care stocks are starting to look interesting.

Security:   THC
Position:   Buy

On June 24, 2013, Tenet Health Care made the announcement that it was to acquire Vanguard Health Systems for $21 per share in cash, an acquisition valued at $4.3 billion. We all know that when a company pays out cash to purchase another company, the share price drops, giving investors an opportunity to buy the share at a lower price and hold for the long-term, knowing that the share price will recover. Let us look at what happened with Tenet Health Care.

Figure 1. Daily chart showing Elliott wave count.
Graphic provided by: AdvancedGET.
The daily chart in Figure 1 shows an Elliott Wave count that suggests that the share price has completed a Wave IV in a new bull run, and is now moving into a Wave 3 of WAVE V. The Wave 2 correction looks as if it has formed a flag pattern, suggesting a target for Wave 3 of $52.87 (49.58-38.04=11.54+41.33=52.87). A wave 3 should not be less than a wave 1. If it is, then wave 5 will be less than wave 3. Assuming therefore that Wave 3 will be equal to Wave 1, the target for Wave 3 will be $52.81, close enough to the target set by the flag pattern. The RSI indicator on the chart is suggesting a buy signal.

Figure 2. Daily chart showing Vote line buy signal.
Graphic provided by: Omnitrader.
The chart in Figure 2 is an Omnitrader chart that brought Tenet Health Care to my attention. The Vote line shows a buy signal with an Advisor rating of 83 (not shown) based on the two strategies, JM Strategy and Red Green Strategy shown in green below the vote line. When you look at previous vote line buy signals, you can see how accurate they have been. Stop losses are triggered when the price breaks below the Verve trailing stop. Note the RSI indicator and the TDI indicator both in oversold positions and suggesting a buy.

I would be a buyer of Tenet Health care as the market recovers, holding for the long-term.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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