On Nov5, 2009, we wrote on this blog, “The next question is what to do with $MHS and $ESRX stocks. $MHS and $ESRX are clearing capturing market share by being aggressive on price. There is the age old question, how do higher volumes at lower margins work out. At this time we do not have enough data to construct a model that we can be confident of. However, we can not run away from the simple twin realities. First the Wall Street is uniformly bullish on these stocks and believes there advantage will continue forever. Second if Obama’s health care IT vision comes true, and all medical records are electronic and everyone in the business is interconnected, the next step is for the technology to disintermediate the likes of $MHS and $ESRX. In a nut shell, we agree with the Wall Street in the intermediate term but see Wall Street’s bullishness as an opportunity to short these stocks in the very long term.”

Since then the stocks have moved up as the Senate bill failed to include the provisions that would have adversely affected these stocks. This up move is now providing an opportunity to start scaling in short positions in MHS and ESRX tomorrow on spikes up.

ZYX Change Method requires a trigger event to initiate an entry. Caterpillar is providing the trigger in the news that it will directly steer its 120,000 employees to Walmart and Walgreen bypassing PBMs. The most important part of the news is complete price transparency. This flies in the face of business model of PBMs that depende on opaque pricing. Running this news through ZYX Change Method Screens shows that the probability of large employers either following Caterpillar or demanding price transparency from PBMs is very high.

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