Home > Stock Analysis

Life Insurance Sector Quietly Rising

Posted: Jun 01, 2009 15:27 PM by Joey Fundora

Tickers in this Article: MET, MFC, GNW, PRU

Life insurance companies have been quietly rallying over the past few months. The group as a whole was down sharply last year and plunged to multi-year lows in March 2009. The group then bounced sharply off the lows, and never gave bears another shot, as they kept moving steadily higher.

Get Free Stock Analysis By Email

It's important as a trader to recognize that sectors will typically move in unison as institutional money rotates from one group to another. While some individual names will certainly take on a leadership role, in general, most stocks will behave similarly. Therefore, sector analysis will often help a trader improve their odds by allowing them to trade in the direction of a favored group.

In looking at some individual stocks, most of the life insurance companies are exhibiting similar patterns. Prudential Financial, Inc. (NYSE:PRU) for instance, has cleared a base it has been building since plunging to the March lows. It cleared the base in early May on a high volume breakout. It has been consolidating above the 200-day moving average since then, and could be ready to challenge for new highs. The faster-moving averages are also now steadily rising. (For more, see The Anatomy Of Trading Breakouts)

Genworth Financial, Inc. (NYSE:GNW) has a very similar chart to PRU. It was sold very hard last year, with the weakness climaxing in March. The stock's share price was actually driven to under $1. After rebounding sharply, it has yet to show any real weakness. Volume has started to pour into the stock over the past month, and GNW is testing the upper range of the bull flag in which it has been consolidating. The measured target for clearing the bull flag would take GNW towards the $10 area.

Manulife Financial Corp. (NYSE:MFC) is another chart almost identical to the others in the life insurance sector. It has rallied sharply off the March lows, tripling in price, and is testing the upper range of a bull flag. There are some subtle differences though, such as the light volume and the fact that it is still in the process of trying to clear its 200-day moving average. These differences are slight signs of weakness, but MFC has been following the move in the sector, and should follow the others if a breakout results.

Metlife, Inc. (NYSE:MET) is one chart that is acting differently from the rest of the sector. MET is not yet above the base it has been building, and is currently under the 200-day moving average. It has however, more than doubled off the lows, and traded steadily higher much like the rest of the sector. If it can trade above the recent high above $35, it could catch some sellers off guard.

Bottom Line
One of the reasons these charts may still have room to move higher, is that it appears some short sellers are getting squeezed. While it is often difficult to discern real buying from short covering, it is more than likely that many late short sellers were attempting to short the sharp bounce off the March lows. Instead of rolling over to test the prior lows, these stocks have been steadily rising without any real selling. Anyone who shorted the initial bounce is likely underwater on the trade, and therefore vulnerable to panic covering. With these stocks currently forming bull flags above their prior bases, it is possible that they could trade much higher. (For more, see Profiting From The Squeeze.)

However, keep in mind that there is plenty of overhead supply, as the life insurance sector is still well off its 52-week high. While V bottoms are rare, they do exist. It will be interesting to see which side wins the next battle in this sector. Do you think these stocks were unfairly punished last year and will continue to rise, or will they fail soon and roll back over? Let us know by participating in the Investopedia Simulator.

Charts courtesy of www.stockcharts.com

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

By Joey Fundora

Joey Fundora is an independent trader located in South Florida. Joey focuses on using technical analysis techniques to uncover supply and demand imbalances in equities. To see more of his work, visit his site on Stock Chart Analysis.

Rate this Article: Your Rating: Overall Rating: Vote Now!

MORE STOCK ANALYSIS