Stocks almost never test the 200 month moving average. When one does, I pay attention.

$MOH just did.

TL;DR

Ticker $MOH

Setup: Wave 2 within a Primary Wave 3

Buyzone: $148-$168

Invalidation: A move below $118

Short Term Target: $368

Risk to reward: 4:1

First, what Molina actually does

Molina Healthcare (NYSE: $MOH) is a managed care company. It sells government-funded health insurance, mainly Medicaid, Medicare and ACA Marketplace plans, to low-income and underserved people across the US.

The model is simple. States and the federal government pay Molina a fixed amount per member per month. Molina keeps whatever it doesn’t spend on care. That makes earnings sensitive to two things: medical cost trends and Medicaid enrolment cycles. When costs run hot, margins compress fast. That’s exactly what drove the drawdown you’re about to see on the chart.

The monthly chart: cycle wave 1 is complete

Price completed five waves up from the all-time low.

Wave 3 finished at the standard 1.618 extension, measured from the all-time low to the wave 1 high, then down to the wave 2 low. Textbook.

Wave 5 extended and topped at the 4.414 extension of those same points. That high completed cycle wave 1.

Everything since is cycle wave 2.

Why this wave 2 is worth studying

$MOH corrected as an irregular flat, which most people now call an expanded flat. It’s the common of the three flat variations and it catches people out constantly.

In an expanded flat, wave B pushes to a new high above the wave 5 top before the real decline starts. Wave B typically ends somewhere between the 1.236 and 1.618 retracement, measured from the wave 5 high down to the wave A low. That new high is what traps people. It looks like continuation. It isn’t.

The structure confirms it. A flat runs 3-3-5:

Wave A has three waves down. Some people count five here. That reading fails, because it would put wave 4 overlapping wave 1, which breaks a hard Elliott rule. Wave B has three waves up into the new high. Wave C has five clear waves down, respecting the fib levels the whole way.

Three, three, five. That’s a flat.

Four things line up at the low

1. The 0.618 to 0.786 retracement. Measured from the wave 1 low to the wave 5 high, this zone is where wave 2 finds support. It’s the buyzone in almost every wave 2 I’ve traded.
2. The 200 month moving average. It sits inside that zone. This is the confluence I care about most. Stocks test the 200 MMA maybe once in a decade, and rarely more than once in their listed life.
3. The flat projection. For an expanded flat, project the fib extension from the wave A high to the wave A low, then to the wave B high. The low usually lands between the 1.0 and 1.618. On $MOH I extended to the 2.618, and price tagged it to the penny.
4. Bullish RSI divergence. Price made a lower low while RSI made a higher low. Momentum stopped confirming the decline. That’s usually a clue the sellers are done.

I want to be straight with you here. That’s the only time I’ve used the 2.618 on an expanded flat. I don’t teach it as a standard level. But price hit it exactly, inside a zone three other things already agreed on, so I’m not going to pretend I didn’t see it.

Four confluences, one price zone. Any one of them alone means very little. Stacked on top of each other, they raise the odds this is the bottom.

Zooming in: the short term chart

With the cycle wave 2 low in, I dropped to the daily timeframe.

Five clear waves up off the low. Absolutely textbook. Wave 5 usually terminates between the 0.618 and 1.414 extension, measured from the wave 1 low to the wave 3 high to the wave 4 low. $MOH stalled at the 0.887 and rejected it cleanly, topping at $244.89.

So we’re now in wave 2 of the larger cycle wave 3. Those five waves up were wave 1. What I’m watching now is the pullback.

Wave B has already found resistance at the textbook 0.5 retracement. I want wave C next, and I want it in five clean waves down into the buyzone.

My plan

I’m splitting my entry into two, possibly three.

First buy: the 200 DMA, which sits just above the 0.618 retracement. If support holds there, I start the position.

Second buy: there’s an unfilled gap sitting in the middle of the buyzone. I add when price fills it.

Third buy: once price reclaims the short term moving averages and confirms the bottom is in.

After that I want confirmation, not hope. Price reclaims the 9 and 21 EMA, then works back through the higher moving averages, all while moving impulsively. Five waves up, three waves down. If I get corrective structure (Choppy and overlapping) instead, the count is wrong and I’m out.

The targets

Assuming price bottoms at the 0.618 fib:

Subwave 3: $368. Calculated with the standard 1.618 extension from the wave 1 low to the wave 1 high to the wave 2 low. That’s a 117% gain

Cycle wave 3: $704. That’s a 309% gain from the buyzone entry.

For reference, $MOH closed around $200 last week. Burry added to his position at $198 on 11 August, saying the position had shrunk relative to his book and he wanted it full-sized again. He pointed to the long-term outlook and the election season as catalysts.

I like that setup. The broad market is deep in wave 5. $MOH is starting wave 3. That’s a defensive position that still has real upside.

Where I’m wrong

Every thesis needs an invalidation level, so here’s mine.

A new low invalidates the count. Wave 2 cannot exceed the start of wave 1, so if price takes out that low, cycle wave 1 didn’t end where I think it did and the whole structure needs recounting.

That’s my exit. I sell the position, no hesitation. Because once that low goes, a test of the 0.786 becomes the likely outcome, and that’s roughly another 25% of downside from there. I’d rather take a small loss and re-enter lower with a clean count than sit through that hoping I was right.

Your turn

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Echo Analysis

"Everything above is my own analysis and my own positioning. It is not financial advice and it is not a recommendation to buy or sell anything. Do your own research and manage your own risk."