The headlines continue to drive the markets today. Whether it’s the continued deluge in Texas from Hurricane Harvey and the likelihood of billions of dollars in damage or the overnight launch of a missile over Japan by North Korea, the markets are going to have plenty to digest over the next few sessions.
Historically, we tend to see the market overcorrect the prices of insurance companies when a catastrophe hits. While it is reasonable and expected for these companies to see a drop, investors often over-do it on the knee jerk reaction. This often opens-up an opportunity for nimble investors to grab some technical deals when these stocks find a bottom.
Today’s three big stock charts look at insurance companies Allstate Corp (NYSE:ALL), Chubb Ltd (NYSE:CB) and Travelers Companies Inc (NYSE:TRV) and try to identify where it will be time to “buy the dip” in each.
Allstate Corp (ALL)
Shares of Allstate have been in a strong bull market trend since February 2016. The rally has been driven by strengthening fundamentals and an interest rate that kept dividend yielding stocks at the top of investor’s “buy lists.” Now, the short-term charts have turned on the stock, providing a potential buying opportunity for patient investors.
- ALL shares are trading almost 5% off of their all-time highs as traders take profits from the Hurricane related stocks. As of yesterday, Allstate had pulled back to its 50-day moving average. This is the first time we’ve seen support from this trendline since shares broke above it in May after earnings.
- From a long-term perspective, $87.50 serves as a potential chart support area. This is where we saw ALL stock consolidate in early 2017 as the shift in the interest rate environment caused many investors to revalue dividend yielding stocks. With rates remaining low, the price is more likely to hold if tested.
- Looking at the RSI, ALL may have another two to three days of selling pressure pent-up in the stock, but it will soon hit an oversold reading that would trigger technical buying. Our model is suggesting that a hold of $90 should serve as a buying signal for traders.
Chubb Ltd (CB)
Like Allstate, Chubb shares have been on a long-term tear since October 2015 as this conservative insurer has enjoyed a growing bottom line and portfolio of business. CB stock remains in a long-term bullish trend as a result.
That said, Hurricane Harvey is taking a chunk out of Chubb, creating what will be a short-term buying opportunity for traders.
- Having dropped 7% since its August highs posted early in the month, CB shares are reaching a point where the stock is a technical buy based on a potential bounce as they approach $140.
- Round-numbered support at $140 and an RSI reading that should be registering an oversold signal at that price will combine to offer traders an opportunity to grab Chubb stock before it moves out of the initial $144 target.
- From a longer-term basis, CB shares will have staunch support from their 20-month moving average, which is currently residing at $137.25. A drop to this price would signal a longer-term buying opportunity for the stock.
Travelers Companies Inc (TRV)
Travelers has P&C exposure through one of the subsidiaries that the company operates aside a bevy of other insurance specialty lines. In other words, TRV has diversified a lot of the risk of a single catastrophic event such as Hurricane Harvey.
Travelers has made a sharp decline as a result of the storm, let’s look at where the buying is likely to come in.
- Our models have loved TRV insurance for more than three years as a relative strength leader. The leadership also means that the stock is more likely to see more volatility surrounding situations such as the stock is seeing now.
- There are warning signs for Travelers that other insurance companies aren’t seeing. Namely, that TRV stock’s 50-day moving average is in the process of turning intermediate-term bearish as it rolls over and begins to trend lower. This means that any bounce should be seen as a trading opportunity, not a long-term buy.
- The long-term chart tells the other cautionary tale for Travelers. A break below $122 will start pushing the stock into the initial stages of a bear market trend in breaking below chart support and the stock’s 20-month moving average. Of the three stocks we’ve discussed today, TRV is the one that you want to give room to breathe here.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.