Centene Surges 5.79% as Technical Indicators Signal Uptrend Reversal, Key Support Holds

Centene (CNC) Technical Analysis

Centene (CNC) surged 5.79% in the most recent session, closing at $28.49, marking a reversal from a prior downtrend. This analysis evaluates the stock’s technical setup using multiple frameworks to identify key drivers of price action and potential trade opportunities.

Candlestick Theory

Recent price action reveals a bullish reversal pattern, with the close above the $27.76 support level (August 14 low) and a strong rally to $28.68 (August 15 high). Key support is established at $26.71 (August 14 low), while resistance consolidates around $28.68. A potential bearish divergence is noted in the August 12–14 range, where prices formed higher highs but lower closes, suggesting waning momentum. However, the recent 5.79% gain implies short-term buyers are re-entering, with $28.49 likely to hold as a near-term support.

Moving Average Theory

Short-term moving averages (50-day, 100-day) are above the 200-day MA, confirming an uptrend. The 50-day MA crossing above the 100-day MA in late July signals a bullish “golden cross,” while the 200-day MA acts as dynamic support. Prices remain above the 200-day MA (current ~$27.50), suggesting trend resilience. However, the 50-day MA’s proximity to $28.00 may test near-term demand, with a break above $28.68 potentially extending the trend.

MACD & KDJ Indicators

The MACD histogram has expanded positively since late July, indicating strengthening bullish momentum, though the histogram’s flattening in early August suggests caution. The KDJ indicator shows overbought conditions (K > 80) on August 15, aligning with the recent rally. A bearish signal may emerge if the K-line falls below the D-line, but confluence with RSI and volume is critical. Divergence between the KDJ and price is minimal, suggesting the uptrend remains intact for now.

Bollinger Bands

Volatility has expanded, with prices testing the upper band ($28.68) on August 15. The 20-day Bollinger Band width at ~$0.90 (vs. a 12-month average of ~$1.20) indicates tightening volatility, often preceding a breakout or breakdown. Prices remain within the bands, but a close above $28.68 could trigger further upward expansion. The mid-band (~$27.80) offers a potential pivot point for short-term traders.

Volume-Price Relationship

Volume surged on the August 15 rally (19.6 million shares), validating the bullish move. However, volume has declined in subsequent sessions, suggesting reduced conviction. The prior downtrend (July 28–August 11) saw declining volume during pullbacks, indicating weak bearish momentum. Current volume patterns suggest the rally may consolidate, but a sustained increase on a new high would strengthen the case for continuation.

Relative Strength Index (RSI)

The 14-day RSI (current ~70) suggests overbought conditions, but the indicator has remained above 60 since late July, reflecting a strong uptrend. A close below 60 would signal weakening momentum, while a retest of the 70 level could trigger profit-taking. Caution is warranted as overbought readings often precede corrections, though divergence is absent for now.

Fibonacci Retracement

Key Fibonacci levels from the July 16 high ($30.41) to August 11 low ($25.25) include 38.2% at $27.82 and 50% at $27.83. Prices have retested the 38.2% level twice (August 13–14) without breaking below, reinforcing its role as support. A break below $27.76 (August 14 low) would target the 61.8% level at $26.90, aligning with prior support.

Backtest Hypothesis

A backtest using a strategy to buy Centene when RSI and KDJ are overbought (RSI >70, KDJ >80) and sell when RSI <70 or KDJ <80 from 2022 to 2024 resulted in a significant loss, with a maximum drawdown of -20.5% on August 25, 2024. The strategy failed to account for the stock’s strong uptrend and subsequent rally, highlighting the risk of relying solely on overbought signals without trend confirmation. Integrating moving average crossovers and volume validation could mitigate such drawdowns by filtering false breakouts.