Here’s your trade on Cardinal Health $CAH – March 18, 2025
Dan Fitzpatrick here at StockMarketMentor.com. Let’s look at Cardinal Health ( NYSE: CAH ) today, this is the 26th of February.
I want to talk about a setup here because this kind of thing can be repeatable, which is what we want. It’s like a golf swing, you know that you are going to be on the right track if you’ve got a repeatable swing. The results of that swing are not a worm burner or a shank or hitting one on the beach all the time.
This is what we’re looking for in trading, we want to be able to hit them right down the middle. What we’re seeing here is, that this is a stock, it’s in an uptrend. By the way, the healthcare sector has been doing pretty well. It depends on which stocks you’re looking at, but a lot of stocks have been working really well lately, and this is one of them.
You can see how this move off the 50-day moving average leads to a really nice trade, and then a sideways consolidation. This really traded sideways for 2 months, before doing what? Before moving up again, now look at the volatility. This thing gapped up a little bit, actually a lot on earnings, and kept running.
And then the next day, everybody came in the day later and said, “Oh my god, I don’t want to miss it.” The stock gapped up and then it traded down, not in a huge way percentage-wise, 4-4.5 percent, and then off to the races again. If we’re just looking at the 50-day moving average we get a better idea of the overall trend, rather than trying to follow the volatility and make sense out of every single move, every single day.
A lot of times the way a stock moves on any given day isn’t really going to make sense to you. What you want to be thinking about is this, I always look at the 50 and the 200-day moving average; I can even put in this moving average, we’ll do simple and we’ll put it here and we will make it 150.00. We’ll make that a green one, and we’ll make it really thick so we can really see this sucker.
I like to look at these moving averages because they can give me a sense, even if I’m not looking at the price itself, if we eliminate the price from this chart and just look at the moving averages you can still see what’s going on here. Everything’s trending higher, and they’re in a nice hierarchy, where the 200 is below the 150, which is below the 50, and then the price is above the 50, though that’s not an absolute prerequisite.
We get these pullbacks and the pullbacks tend to be where the buying opportunities are. If you are chasing a stock that’s gone well above the 50-day moving average, in this case over 10 percent, you’re late to the party. Here, this is up 7.5 percent and then the stock pulls back. We’re looking at this here late last month.
We’re waiting for the right entry, this could be it, so this is a good thing. We’re getting closer to the 50-day moving average. Now, if you happen to get an up day, maybe that’s time to take a little position and keep a stop just a little bit below the 50-day moving average. We don’t want to do it on a down day because you never know if this will just keep going.
We want to do it on a day there’s evidence that buyers are coming in, so that’s here. You could actually start building a position after two higher-than-average volume selling days. This day here was a total reversal, just a big wipeout of buyers here on this, it’s called a tombstone doji. On this day here you’re buying the stock.
You’re starting a position with the idea that the stock will not fall below the 50-day moving average, it’s an early entry. And then still okay, and then, bam, you’re stopped out. This is why you take small positions. Stopped out, it doesn’t mean the stock’s dead. Look at what happened over here, the same thing, It’s stopped out.
Now we’re wondering whether we’re going to get a recovery, like a reversal recovery right away. We didn’t really get it there, but we’re happy that we’re seeing a higher close relative to the open. But still, this is a stock to stay away from. Now this is a stock to look at again. At this point, we’re on the 12th, this is just last week.
At this point you can say, Well, maybe I was right. According to my thesis, I’m buying a little bit early, a very tight stop so very low risk. Now bam, I’m shaken out, but I’m still okay having bought this here. Getting shaken out is a part of trading as long as you’re not getting crushed.
And then I see this, okay well maybe I was actually right after all. This just pulled back like it’s done here like it’s done here, all within an uptrend. Now we’ve got this, the 50-day moving average. We’re looking for evidence that this is really truly going to rebound higher off the 50-day moving average.
Now we’re on Thursday, if I recall correctly it was a crappy day in the market. Now we got a move higher, and then guess what? Boom, higher still, on the 17th, that’s Monday, and then it leads to today, bam. Now we’re up pretty nicely, another 1.4 percent move. I’ve just walked you through a tentative buy, an early buy that ultimately got shaken out.
Now, if you wanted to keep a looser stop, well, I’ll give it a 5 percent stop or whatever. You could do that, you wouldn’t have been shaken out. But my stated thesis for getting into the stock here is, that this is a rebound that’s likely to hold the 50 and it didn’t. So okay, I’m out. But then back here we’re looking at this, we’ve still got a little bit below average volume.
And so a better time to be buying, frankly, would have been yesterday but guess what? I was on a plane coming back from Dallas, so I couldn’t make this trade if I had seen it. This would have been a better time, right? However, this is only up 1.4 percent today, so we could frame this trade a little bit differently than this because we’re buying the breakout.
What I would look at here is a little bit below-average volume, that doesn’t feel great. But I like the move. What I wanted to see was heavier than average volume on this kind of move. So we’ll look at the weekly chart, a nice uptrend here so this is institutional buying. It’s coming out of a base in multi, multi-quarter base in 2024.
Now I’ve got this pullback, it’s like a touch and go, where the stock is in an uptrend. It pulls back, it gradually comes back to the 50, and then moves higher again. That’s what we’ve got here, it would have been nice to see volatility a little bit lower. So what you’re doing here is, hopefully even the stock will pull back a little bit, but let’s say it doesn’t.
What you’re doing is, you’re buying here, anticipating that the stock is effectively breaking out above this resistance. So you’re buying the stock here, and you can say, “Well, I need to see the stock fall clear down below the 50-day moving average for me to know that I’m wrong.” That’s 4.5 percent, you could do that.
My preference would be not to do that because I will know, based on the way this thing’s trading and it is away from the 50-day moving average, I’ll know whether I’m wrong to make the trade. Frankly, if the stock falls back below today’s intraday low of 129.50 or 129.49. I could be buying this stock tomorrow and looking at 130.00 as a logical support level after this broke out.
I could keep a stop, maybe at literally 2 percent, another small position to open up the trade. Two percent to the downside, which would really mean that I need to be getting 4 percent to the upside, which would take us to about 137.00, I can make that trade. Give this a shot tomorrow and see what happens.
As I said, hopefully, if the stock just stays here and does nothing, then you do nothing either. Because that tells you that this breakout has run its course. Then you want to be waiting patiently for the next move down closer to the 50, where you can be buying on pullbacks and start to build a position.
The bottom line is this, in this kind of market you really need to be trading small. Because it definitely penalizes aggressiveness, and the rewards that you’re getting are not as great as they used to be 6 months ago. So always respect your risk. Know why you’re buying this stock, where your stop is, where your, oh crap I’m wrong level is, and then keep a stop there. A fractional position to start with.
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