The Ouroboros

This chart of American Healthways/AMHC is a fine example of a major breakout that patiently bides its time. While the market swings violently from high to low (and vice-versa), this stock just... waits. And shows how easily most investors -- who self-proclaim themselves as chart-readers or technical analysts -- end up more confused rather than enlightened. They draw trend lines, perform all types of studies, and do nothing but make pronouncements, and etc. ("Look at how ugly the market looks! I await follow-through to today's rally before I will buy...") Yawn.

This lack of perception is why technical analysis -- which is a tool for when to buy, and certainly not what to buy -- becomes instead a crutch. It becomes a siren song for those investors who want to crash on the rocks and shoals of investing, even though they believe their goal is to make money.

AMHC is a small (short term) base that nests on top of a large (intermediate term) base, which itself nests on top of a massive (long term) base. The critical breakout -- which I believe already has occurred -- will represent not only more of the same (higher highs and higher lows), but also an acceleration in the pace of the advance...

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And this next chart is a Daily Graph that betrays that the relative strength (not RSI) for AMHC achieves new high ground ahead of price, a critical tell.

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To explain who and what AMHC is and does, I share this article from Investors Business Daily (from the 10/25/2004 edition)...

Disease Management Catches On With Its Clients
GLORIA LAU

Given the continuing rise in health care costs, employers and insurers will try almost anything to keep costs down.

One option is disease management. The idea is that if patients with expensive ailments such as diabetes and heart disease get regular preventative care, they're less likely to need costly hospitalizations. Most major health insurers offer disease management programs. Medicare is about to run pilot tests of it on 10% of its members.

American Healthways/AMHC is the country's biggest disease management provider. Its health-plan clients boast 50 million members. Health plans make up 95% of the firm's revenue. The rest of its contracts are with hospitals. While the company works to grow its disease-management business with clients, there's a chance some of those clients will develop programs of their own. "There's always that risk," said Chief Executive Ben Leedle. "It's the age-old build-or-buy scenario. Our job is to make sure the customer sees the value of our relationships and . that we continue to produce results."

THE COMPANY

American Healthways wins clients by spelling out the potential upside of its programs. In 95% of cases, it can promise a certain level of financial savings and that patients will reach some health benchmarks. It usually can forecast the annual savings five years out, Leedle says. "Say you have 100 patients and they cost (the health plan) $400 per patient per month," he said. "And say that we put our program in and we save you 10%. Next year each patient will cost $360, a $40 savings per patient per month."

American Healthways offers a 2-to-1 return on investment. If the savings are $40 per patient per month, the health plan pays American Healthways $20 and keeps $20. Disease management has its critics, however. Some argue that spending inevitably will rise because it costs more to provide regular tests, medicine and doctor visits. And the longer patients live, the more they'll cost. Other studies suggest disease management works. One such study involves Cigna, which has a contract with American Healthways. Cigna's first-year results, recently published in policy journal Health Affairs, show that with disease management, the cost to care for a diabetic dropped nearly 25% to $417 a month. Drug costs dipped 7.6%, while hospital admissions fell 30%. Almost 43,500 diabetics were studied.

LOOKING AHEAD

From the beginning, American Healthways lobbied for and advised Medicare on how to structure a chronic care program. Analysts expect it to win some of these Medicare pilot contracts. "My guess is that the programs American Healthways offers will look attractive to the people making the decisions," said analyst Andrew May of Jefferies & Co., which has a banking relationship with American Healthways. "I'd say it's significantly better than a 50-50 chance that they'll get some of this business."

© 2005 Investor's Business Daily

In for a penny, in for a pound. The following data is again from IBD...

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I had previously muttered the name of American Healthways/AMHC. I believe it is a "buy", preferably closer to $35 but a buy nonetheless.