HealthEquity's Technical Crossroads: Wait for RS 80 Before Buying

HealthEquity (NASDAQ: HQY), the leading provider of health savings account (HSA) administration and financial wellness solutions, has caught the attention of investors following its recent upgrades in key metrics. While the company's fundamentals remain robust—driven by strong HSA adoption rates and operational efficiencies—its technical chart presents a cautionary tale. Let's dissect whether now is the time to buy or if investors should wait for clearer signals.

The RS Rating: A Key Benchmark Still Out of Reach

HealthEquity's IBD Relative Strength (RS) Rating, a critical gauge of its price momentum relative to peers, has seen mixed signals. After climbing from 68 to 73 in June, the stock remains below the coveted 80 threshold—a level historically associated with breakout potential. While the company's Q1 fiscal 2026 results (15% revenue growth, 21% EPS jump) justify optimism, the RS Rating's reluctance to sustain a push above 80 suggests lingering hesitancy among institutional buyers.

The dip in momentum traces back to its June 4 breakout from a cup-with-handle pattern. Instead of consolidating gains, the stock retraced sharply, erasing its prior advances. This pullback underscores the need for a retest of support at the $40–$42 range before confidence can be restored. Until then, the technical picture remains incomplete.

Industry Positioning: A Strong Foundation, But Not Yet a Buy

HealthEquity's fundamentals are unambiguous positives. As the No. 2 player in the Commercial Services-Outsourcing sector, it sits just behind Aramark (ARMK) and ahead of rivals like Conduent (CNDT). Its HSA assets grew 15% year-over-year, fueled by AI-driven efficiency gains and a 9% rise in total accounts. These metrics, paired with a Zacks Rank #2 (Buy) rating, highlight its operational strength.

Yet, the stock's recent underperformance relative to the S&P 500 (which has gained 4.9% YTD) signals a disconnect between fundamentals and price action. Investors should note that while HealthEquity's shares are up 7.2% YTD, its industry peers have lagged, leaving room for relative outperformance—if the technicals align.

The Case for Patience: Wait for RS >80 Before Pulling the Trigger

Here's the bottom line: HealthEquity is a compelling long-term story, but the near-term buy signal isn't yet flashing green. Here's why:

1. Technical Confirmation Required: The stock needs to sustain an RS Rating above 80 for at least two weeks to signal institutional buying momentum. A retest of the $40–$42 support zone followed by a clean breakout could reignite interest.
2. Pattern Reversal Needed: The failed cup-with-handle breakout in June demands a reversal of that trend. A close above $46 (the June high) would erase doubts and validate renewed momentum.
3. Fundamental Catalysts Are Present, but Not Yet Priced In: The stock's 15x forward P/E ratio is reasonable for a growth stock, but until the RS Rating confirms leadership, valuation alone isn't enough.

The Investing Playbook: Monitor, Don't Commit—Yet

Investors should treat HealthEquity as a “watch list” candidate until technicals confirm its strength. Here's how to play it:
- Wait for RS >80: Track the RS Rating closely. A sustained move above 80 would signal the stock is primed for a run.
- Watch for a Reversal of the June Pullback: A close above $46 would invalidate the bearish pattern and justify a long position.
- Avoid the Temptation to Buy the Dip Prematurely: The $40–$42 zone is critical—failure to hold here could push the stock toward $35, where support is weaker.

Final Take: Let the Chart Tell the Story

HealthEquity is a company worth owning, but the timing must be right. Its industry dominance and growth in HSAs are undeniable, but the market's current skepticism—reflected in the RS Rating and chart patterns—demands respect. For now, let the stock prove its mettle by breaking through the 80 RS barrier and reclaiming its technical footing. When it does, that's the moment to pounce. Until then, keep your powder dry.

Disclosure: This analysis is for educational purposes only. Always consult your financial advisor before making investment decisions.