Aflac Incorporated (NYSE:AFL) shares sold off Thursday on a surge in volume that likely caught plenty of traders by surprise. However, AFL stock continues to look strongly positioned through a longer-term technical lens, and is thus a prime candidate to buy on dips (and avoid on small sprints) until financials and the broader stock market can support a better upside move.
Aflac’s first-quarter earnings report, out April 28, included misses on the top and bottom lines. However, during the conference call that followed, AFL was quick to point out that the yen/dollar exchange rate was in large part to blame for the weaker-than-expected results.
The company went on to reiterate its earnings guidance for the full year; Aflac should benefit from a marginally increasing-interest-rate environment, which some analysts see taking place in the second half of the year.
AFL Stock Charts
The longer-term picture of AFL stock through the lens of the multiyear weekly chart below shows a stock that since its 2009 lows has systematically pushed higher with a series of healthy consolidation/correction phases, each one of the leading to important bases and higher lows. From these, Aflac was constructively positioned to rally higher.
By November 2013, Aflac stock had again reached its all-time highs from the spring of 2008, but given the long-term duration of said top, AFL just wasn’t ready to meaningfully break higher. Since late 2013, Aflac has mostly consolidated, built an important higher base yet again and generally wiggled itself into a constructive spot. It recently has coiled up below all-time highs, represented by the upper red dotted line on the chart below.
On the daily chart below, we see that since last October, AFL stock again made a series of higher lows, and then in February, Aflac made a more meaningful move back above its 200-day simple moving average.
But the entire rally since then has come on waning upside momentum, as is nicely illustrated by the lower highs of the Relative Strength Index (RSI) at the bottom of the chart.
Thursday’s 2.81% high-volume selloff in the stock was thus a good reminder that despite Aflac’s constructive position in the bigger picture, AFL stock still lacks enough momentum for a meaningful push higher.
Those expectations of marginally higher interest rates in the second half of this year, along with the lag of the broader financial sector (longer-term) and the bullish longer-term chart of Aflac, lead me to believe that AFL stock should be bought on any dips.
Active investors should look to build positions in the stock in the high $50s to low $60s, with expectations that the stock works its way into the low to mid-$70s over the next six months.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
