Aflac Incorporated (AFL): Buy the Dips, But Sell the Rips

AFL stock sets up a pair of opportunities for traders and investors

Shares of supplemental insurance company Aflac Incorporated (NYSE:AFL) staged a failed rally on Tuesday before the company reported its Q1 earnings after the close of trading. While Aflac stock looks well beyond promising for the next six to 12 months, in the near-term, AFL feels tired and overdue for a pause.

Aflac Incorporated (AFL): Buy the Dips, But Sell the RipsI have two potential ways to play this stock.

Specifically, for its fiscal first quarter, Aflac reported earnings of $1.74 per share, which compares favorably versus the $1.54 it reported in the same period one year ago. Top line revenues rose well more than 4% on a year over year basis.

While AFL stock has yet to give us a truer reaction to this latest batch of earnings, in the near-term, even one more rally would be a reason to fade/short the stock before considering buying it again for a medium- to longer-term play on the long side.

Aflac Stock Charts

For some perspective, let’s first understand the bigger picture of Aflac stock. The multiyear look-back shows a stock that after rallying into its late 2013-early 2014 highs has been struggling ever since to overcome those highs in the high $60s.

While resistance has yet to break over the past few years, AFL stock has essentially been consolidating and thus coiling up below this big horizontal line of resistance and thus barring any significant fundamental altering in the stock it is likely only a matter of time until a breakout does occur. However, as we will see on the daily chart, the ascent over the past couple of months has been too steep and exhaustive; a sustainable breakout from here without a pullback or price consolidation first is very unlikely.

Aflac stock chart weekly
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On the daily chart, while the ascent off the January lows has been awfully steady, there are plenty of warning signs not to chase this move higher for the time being.

Aflac has risen about 25% in a matter of a couple of months, all the while holding above its yellow 21-day simple moving average. The most recent ascent now has the stock extended above this moving average and holding right above its blue 8-day MA. Ultimately it is only a matter of time until a first pause in the stock gets it moving toward the yellow line.

Also note that from a momentum perspective, AFL stock is highly overbought, with the MACD oscillator at high readings last seen in 2012.

Aflac AFL stock daily
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Very simply, Aflac — upon the next bearish reversal — should set up as a short candidate for traders and active investors. A daily close below $67.50 opens up a first price target around $65.50 but more likely in the $63-$64 area.

That’s also where medium- to longer-term investors should find better buying opportunities again.

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