How To Draw Birds Flying

CAH could rise more, but beware of betting the nest egg until the indicators confirm the gap up.

By BRUCE KAMICH

May 11, 2020 | 02:49 PM EDT

Stocks quotes in this article: CAH

Cardinal Health, Inc. (CAH) is trading higher Monday on the back of an earnings and revenue beat for Q3. Prices made a new high for the move up from the March low, so a look at the charts seems like a good idea.

In this daily bar chart of CAH, below, we can see that prices are above the rising 200-day moving average line and above the still declining 50-day moving average line. The On-Balance-Volume (OBV) line has been weak since February and continues to decline even as prices rallied from the middle of March. The Moving Average Convergence Divergence (MACD) oscillator is above the zero-line and should strengthen if CAH continues to hold these gains.

In this weekly bar chart of CAH, below, we can see that prices have been trading around the 40-week moving average line. Trading volume has not expanded as prices have moved sideways the past two years. If prices were making a durable bottom pattern, I would anticipate that volume would begin to expand at some point in the base. This has not happened yet. The weekly OBV line is not showing us a pattern of aggressive buying and that is a disappointment. The MACD oscillator is narrowing but still below the zero-line.

In this daily Point and Figure chart of CAH, below, we can see a potential upside price target in the $69 area.

Bottom line strategy: Call me old fashioned, but I still like to see volume confirm the trend and expand on rallies. CAH could trade higher from here, but I will be on the sidelines until I see the OBV line turn up vigorously.

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