Techie Tuesdays: Medco Health Solutions

This is the fourth installment of Techie Tuesdays.  So far we have looked at Exxon Mobil, Starbucks, and J.P. Morgan Chase.  Today we will examine Medco Health Solutions.

Medco Health Solutions (Ticker: MHS), known in short as Medco, is a New Jersey based company that provides pharmacy benefit management services.  Medco has 19,900 employees and in 2007, Medco brought in $44.5 billion in revenues.  In the past year, Medco’s stock has lost 22.7 percent of its value, but this is good considering that the S&P 500 has lost twice as much (44.5 percent) in the same period.  (Data from Yahoo Finance)

Let’s see what the technical indicators reveal about Medco.

So far, we have used the simple moving average, exponential moving average and the Bollinger bands to signal a buy or sell.  Today, I will introduce a new tool: the Moving Average Convergence Divergence (MACD).

The MACD uses exponential moving averages from three periods: 9, 12 and 26 days to form two lines. One line plots the difference between the 26 and 12-day EMAs, the other line is the 9-day exponential moving average of the MACD and serves as a trigger line.  Both lines are tracked against a center line (which equals zero). There are a few ways to use the MACD, here are the signals:

Bullish: Positive divergence (26 day EMA minus 12 day EMA is greater than zero), bullish moving average crossover (the MACD line crosses above the 9 day EMA of the MACD), and the bullish center line crossover (the MACD line crosses above zero).

Bearish: Negative divergence (26 day EMA minus 12 day EMA is less than zero), bearish moving average crossover (the MACD line crosses below the 9 day EMA of the MACD), and the bearish center line crossover (the MACD line crosses below zero).

The chart is rather large, so I had to use a link this week. Click here to view the Yahoo chart for Medco.

Now, let’s take a look at Medco’s MACD for the most recently completed trading day, 12/1/08.

MACD (26-day minus 12-day EMA): 0.09

9-day EMA of the MACD: -0.17

Divergence (MACD minus 9-day EMA of the MACD): 0.27

Note: The divergence is a little off because of rounding.

As of 12/1, Medco has positive divergence. Upon examining the crossovers on the chart we can see that on 11/24, the MACD line crossed over the 9-day EMA and on 11/28, the MACD crossed over zero.

TST’s Techie Tuesday Recommendation: BUY