Watch These Humana Price Levels as Stock Jumps on Report of Merger Talks

Humana (HUM) shares surged in premarket trading Monday after Bloomberg reported late Friday that Cigna (CI) has resumed its efforts to merge with the struggling health insurer.

According to people familiar with the matter, the companies have held informal preliminary discussions about a potential deal, but no transaction or timeline has been agreed upon. In December last year, Bloomberg reported that the two companies walked away from an potential acquisition after failing to agree on a price.

Shares in the health insurer have plummeted more than 40% since the start of the year as of Friday’s close amid ongoing challenges including a sharp decline in Medicare plan enrollments, mounting costs due to higher demand for medical care, and a reduction in government reimbursements.

Humana shares were up 4% at around $278 about half an hour before Monday’s opening bell.

Below, we break down the technicals on Humana’s weekly chart and identify important price levels that could attract extra attention.

Potential Bear Trap

Since retracing to the 200-week moving average in early July last year, Humana shares have traded within a descending channel.

Importantly, the stock broke down below the pattern late last month, but promptly reversed course the following week to reclaim its lower trendline. This potentially indicated a bear trap, a chart event that lures investors into selling or opening a new short position, before the market rebounds to cause a loss.

Moreover, the September breakdown occurred on the highest weekly volume since February 2009, possibly pointing to capitulation selling before the stock started its recovery this month.

Let’s identify three key overhead chart areas where Humana shares may encounter selling pressure if the stock continues moving higher from current levels, while also discussing a crucial support level that investors will likely be watching.

Key Overhead Price Levels to Watch

Firstly, it’s worth watching how the stock responds to the psychological $300 area, a location on the chart where it may run into resistance near the August 2019 peak and April 2024 trough.

Further buying could see the shares climb to around $370. Investors may look to take profits in this area near the descending channel’s upper trendline and downward sloping 50-week MA, a region that also aligns with a series of lows on the chart from June 2020 to January 2022.

A longer-term bullish move could lead to a retest of the $450 level, currently just above the 200-week MA, where the shares may face selling pressure near a trendline connecting a range of comparable trading levels on the chart from November 2020 to January this year.

Crucial Support Level to Monitor

If Humana shares lose ground, investors should closely monitor the $230 level, a general area on the chart that buyers have defended on three separate occasions between April 2019 and September this year.

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As of the date this article was written, the author does not own any of the above securities.