UnitedHealth Group stock has been in a strong rally this year as investors cheered its turnaround efforts and the Trump administration’s decision to boost Medicare Advantage payments by a larger-than-expected rate. 

UNH jumped and peaked at $434 last week, up by 66% from its lowest point this year. This surge mirrored that of other health insurance companies like CVS, Humana, and Elevance Health.

There are signs that this rally is about to end as the UNH stock has flashed some highly bearish chart patterns ahead of its earnings report.

UnitedHealth Group stock technicals points to a retreat

The daily chart shows that UNH stock has been in an uptrend in the past few months. Recently, however, this momentum has slowed, resulting in the stock forming a rising wedge pattern. 

This pattern is made up of two ascending and converging trendlines, whose two lines are now nearing their confluence. In most cases, this pattern normally leads to a bearish breakout, especially when the two lines are about to converge.

The Relative Strength Index (RSI) and the Percentage Price Oscillator (PPO) have formed a bearish divergence pattern. This is a situation where an asset is rising, while the oscillators are moving downwards. 

In this case, the RSI is approaching the neutral zone of 50, while the PPO Indicator is about to cross the zero line. 

Therefore, the most likely scenario is where UnitedHealth shares make a bearish breakout after earnings this week. If this happens, the next key level to watch will be at $400. 

The bearish outlook will become invalid if it jumps above the psychological level of $450. Such a move will invalidate the bearish outlook and point to further gains ahead.

UNH stock chart | Source: TradingView

UnitedHealth Group to publish earnings amid valuation concerns

UnitedHealth Group stock has jumped in the past few months as the management has implemented a turnaround strategy. This approach included management changes and a full independent review on its business operations.

The stock continued its strong rally after the Trump administration hiked Medicare Advantage payouts by over 2%, higher than what it proposed in January this year. This addition is worth over $13 billion, a notable amount since UNH has a big market share in the industry.

The company also published strong financial results and hiked its annual guidance. As a result, this week’s earnings report will provide more hints on its business and whether the changes are having results.

Yahoo Finance data shows that the expectation is that its revenue softened by 71 basis points to $110 billion. The guidance for its third quarter is expected to be $110.89 billion, with the annual revenue coming in at $444.1 billion. 

There are signs that UnitedHealth has become a bit overvalued, meaning that its earnings need to be significantly higher than expected. The forward price-to-earnings ratio stands at 24.80, higher than the five-year average of 25. This likely explains why Warren Buffett’s Berkshire Hathaway decided to sell the shares. 

Additionally, UNH stock is slightly higher than the consensus among analysts. This consensus is $417, higher than the current $424. In a recent note, Sidharth Sahoo, an HSBC analyst, placed his target for the stock at $380. Other analysts, including those from RBC and Morgan Stanley, hiked their targets to over $460.

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