CVS Could Decline Another 20% From Here

CVS Health (CVS) is down sharply Friday — about 10% — in response to reports that it’s in talks to acquire primary care chain Cano Health (CANO) and a Medicare Advantage plan downgrade. Let’s jump to the charts to see what they can tell us. 

In the daily bar chart of CVS, below, we can see that the shares have gapped lower this Friday. Prices are trading below the cresting 50-day and 200-day moving average lines but more importantly prices have broken their June nadir.

The daily On-Balance-Volume (OBV) line turned lower in early August giving you a “heads up” that sellers were being more aggressive ahead of this current sharp decline. The Moving Average Convergence Divergence (MACD) oscillator turned bearish in late September. 

In the weekly Japanese candlestick chart of CVS, below, we do not have this week’s red (bearish) candlestick plotted but using your imagination we can see a bearish lopsided double-top pattern. The downside price target from this pattern is in the $75-$70 area. The slope of the 40-week moving average line has turned negative (bearish).

The OBV line is pointed down. The MACD oscillator is weak and close to crossing below the zero line. 

In this daily Point and Figure chart of CVS, below, we can see that the shares have met a downside price target in the $88 area. No gap here on this type of chart.

In this weekly Point and Figure chart of CVS, below, we can see a potential downside price target in the $71 area. 

Bottom-line strategy: CVS has broken down from a top formation. Expect further declines with a tentative price target of $71. Stand aside.