August 6th, 2009

Life Insurance Stocks: GNW, HIG, LNC, AZ, PFG and Others

An industry group that seems to be flying under the radar are those in the Life Insurance industry group. It’s understandable because there are so many fundamental reasons to just hate these stocks (click here for an interesting analysis written on April 2, 2009, suggesting that you short these stocks), including:

  • They make about half their earnings from their investments, both bonds and stocks.
  • Companies that sell annuities have been caught holding the bag as they must make guaranteed payments to their annuitant, while being able to earn less on their investments.
  • Some life insurance companies qualified for TARP money, took it and are now subject to the same or similar restrictions as their banking cousins.

But perhaps the reasons, however, for not wanting to own these stocks through the financial crises of the past year may be the same reasons for wanting to pick some up now. The stock market has improved, there are prospects that interest rates may start increasing as we go into the winter (also explains why TBT may be a good buy now) and the profitablility of life insurers may start improving.

Of the 20 stocks in this group, 12 have doubled since March 9. Much of that price move can be explained as bounce back that saw 12 of these stocks (not necessarily the same twelve) sell off 70% or more to abysmal lows from this time last year to March 9. So even if many made nice moves since the March low, several of them appear to be reigniting for the next leg, along with the financials.

  • GNW
  • HIG
  • LNC
  • AZ
  • PFG
  • PL
  • PRU
  • AXA

I like most of these stocks at this stage of the market’s life cycle since they tend to have higher than average volatility due to their step declines since last year’s highs. I especially like (and, in full disclosure, own) GNW but can see favorable bottom reversal patterns in them all.

February 16th, 2009

Seeds of Next Bull Market? Shippers and Heavy Construction

It’s time for a reality check to see how the base building I described on January 26 is progressing. The negative news reported over the airwaves, in the press and in blogs continues unabated. You can take a pulse of the general consensus by reading the headlines presented in such aggregator sites as The Kirk Report and Abnormal Returns. Last time, the list was from The Kirk Report; this list comes from this past Friday’s Abnormal Returns (for links to actual stories, click the link above):

  • Earnings have collapsed. How long before they return to trend?
  • Absolute return mutual funds have been anything but.
  • The wave of bankruptcies is nowhere near cresting.
  • Germany is having problems placing its debt.
  • Is the US doomed to make the same mistakes that Japan made?
  • Europe, especially Ireland, is in bigger trouble than the US.
  • No matter how you measure the employment picture, it is bad.
  • Economist aren’t stupid. They are simply trying to explain something, the economy, that is too complex for us to understand.
  • Curing the common cold will be just about as easy as preventing future market bubbles.

I’ve heard it said in the news business that “good news doesn’t sell papers” nor does it hold on to TV viewers so it shouldn’t come as a surprise if the media hasn’t yet be able to shake their case of the blues. A couple of weeks ago I prescribed that you take a look at the market’s internal dynamics as a palliative for a sure case of investor depression. So how do those measures stack up now after two more weeks full of bad news?

Interestingly, and surprisingly, they continue to improve:

More than a third of stocks have successfully crossed above their 90-day moving averages as compared with only a fifth a month ago. Nearly one of every ten stocks are now above their 180-day moving averages as compared with one of every fourteen a month ago. It’s a greater challenge for stocks to cross the slower and more removed 300-day moving average; improvement there has only been marginal.

Finally, a large number of regional banks reversed their Golden Cross status (the index above the 90-day MA which was above the 180-day MA) because of serious erosion in the prices of the group, other stocks have risen to take their place holding the count constant though relatively small.

I’ve written here fairly consistently since the end of last year (see October 22, 2008) that I believe the market is working hard to build a base after the huge 2008 collapse. I’ve warned that patience is need since it would take some time until we get an all clear signal. But in addition to the Industry Groups I mentioned previously that appear to be leading in the base building effort (Oil, Fertilizer, Steel, Healthcare, Gold) here are two more offering some interesting basing action (click on symbol for charts; note time scales may differ):

  • Shippers
    • DSX (Diana Shipping)
    • TGP (Teeky LNG)
    • GNK (Genco Shipping)
    • VLCCF (Knightsbridge Tankers)
    • TBSI (TBS International)
    • NAT (Nordic American)
    • ONAV (Omega Navigation)
    • SSW (Seaspan)
    • PRGN (Paragon)
  • Heavy Construction and Engineering:
    • FLR (Fluor)
    • JEC (Jacobs Engineering)
    • KBR (KBR)
    • ACM (Aecom)
    • CBI (Chicago Bridge & Iron)
    • PCR (Perini)
    • STRL (Sterling)
    • ENG (Englobal)

Notice the similarities among these charts as all appear to be forming chart patterns: symmetical triangles, ascending trianges, wedges, cups-and-handles, downward sloping channels, head-and-shoulders – a true charting eduction. The similarity is understandable since the herd is stampeding these stocks for the same underlying economic reasons (yes, “fundamental” and “technical” analysis do sometimes overlap).

But a word of caution is warranted. “Looks can be deceiving.” We are in the early stages of what we hope is the beginning of the first phase (i.e., accumulation) in a new market life cycle. If true, then the charts will turn out to be true reversal patterns but, if not, then they will merely have been consolidation patterns followed by further downside.

Chart patterns often look compelling but caution dictates that you first merely put these stocks on your watch list and only later, after you see a breakout above the suggested trendlines by significant percentages and on above average volume, should you put one or two in your portfolio.

It’s too early to say how high momentum will carry these stocks if and when they do break to the upside. Each will face their own unique headwind and resistance. But “where there’s smoke there’s fire”. All these stocks can’t be basing without some fundamentals to push them in the same direction.

September 7th, 2008

Industry Groups on the Move: Tech Still But Few Compelling Charts

Sometimes, a stock selection tool just doesn’t seem to work. This time it’s the IBD Industry Groups on the Move (in the interest of full disclosure, this is a scan I “invented” and is not endorsed or designed by IBD). I first described how I use weekly changes in IBD’s Industry Group rankings to highlight Groups that may contain future top stocks in February 2007 but since then it frequently led me to jump on to stocks in select industries too early.

The following table summarizes recent postings derived from scanning the Groups on the Move:

All in all, it’s not too bad average. The Industry Groups have declined an average 1.29% from the date of the blog posting to Friday while the S&P has declined 8.50% over the comparable periods. With the exception of the most recent Technology Group scan or August 10, each of the scan results were better (or not as bad) as the S&P 500 over the same period.

But as this Bear Market wears on, the Groups on the Move seem to be churning and not spilling out any stocks with compelling (meaning ready to be bought) charts. There are a number of stocks whose charts have great potential but there are still base building and won’t be ready for significant upside moves for several weeks or months. And they may be base building only because they’ve fallen so far that falling any further would be equivalent to hanging up a “going out of business” sign. For these, waiting is still more prudent than trying to jump on board and catch the first few percentages.

The Industry Groups increasing most in ranking since April 25 are still tech-related. I still can’t find many stocks that look like they’re about to make significant breakouts as I scroll through the charts of these Groups. The few exceptions include:

  • QSII (Quality Systems): Computer Sftwr-Medical
  • ATHN (Athenahealth): Computer Sftwr-Medical
  • HLTH (Hlth Corp): Computer Sftwr-Medical
  • MDAS (Medassets): Computer Sftwr-Medical
  • ELON (Echelon Corp): Computer-Networking
  • AOC (Aon Corp): Insurance-Brokers
  • MMC (Marsh & McLennan): Insurance-Brokers
  • LPHI (Life Partner Holdings): Insurance-Brokers

April 29th, 2007

Buy High, Sell Higher: Insurance Industry Stocks

In a previous posting entitled “Stocks on the Move”, I described an approach involving stocks with volume spikes. Another approach for identifying stocks with prospectively good momentum (in addition to Industry Groups that appear to be moving up in rank and stocks experiencing volume spikes) is focusing on stocks that are forging into new all-time high territory.

I haven’t been able to come up with an scan that will go through the 7100+ stocks in my TC2007 database to automatically filter out those that are about to, or just recently have moved, into virgin new high territory. But what I have been doing is tagging stocks I’ve identify as “Stocks on the Move” and segregated them in an “A-List” watchlist. What I discovered, I believe, is interesting an actionable.,

There’s a clearly observable ceiling, or resistance trendline, on many stock charts at or near the all-time high price created with the end of the tech bubble. Many stocks have approached that price several times but were unable to break through. You probably now saying, “duh” …. a “so-what” fact.

But, actually, it’s amazing! After nearly seven years, many are, again, back at those levels and setting up for what, I believe, will be different this time around. With market momentum moving the leading averages to new highs (the DJ-30 already is in new all-time high territory and the S&P-500 is quickly approaching a similar breakthrough) it may mean that there are opportunities setting up for many lower risk trading opportunities with big quick, upside potential.

A great example of what could happen to these stocks is Brush Engineered (BW). True, it’s in a very hot Industry Group right now (Metals-Processing and Fabrication), but it shot through a long-term resistance level and continued moving up like a rocket:

Another great example to prove the point is SUN which, in addition to breaking through to all-time new highs, but is an Oil & Gas stock, one of the best sectors in the last decade:

The stocks I’m about to list are in many industry groups but they share one common characteristic …. all are approaching or have recently moved through a clear, very long-term resistance level that stretches back nearly a decade to around the time of the end of the 90’s bull market.

Although many have had significant recoveries from their 5-year lows (100% and more), breaking into new highs will give them new, unobstructed upside momentum. What are some of those stocks and what do their charts look like? Since there are many (my list currently includes over 100 stocks), I’ll cover them over several postings. First are the insurance stocks (click on symbol for a chart):

  • AOC -Insurance Brokers
  • LPHI-Insurance Brokers
  • GFR -Life
  • NFS -Life
  • PL -Life
  • PNX -Life
  • AGII -Prop/Casualty/Title
  • CINF -Prop/Casualty/Title
  • FFH -Prop/Casualty/Title
  • MCY -Prop/Casualty/Title
  • MTG -Prop/Casualty/Title
  • TRH -Prop/Casualty/Title

A word of caution though. None of the Insurance Groups ranks higher than 110 and have, in fact, dropped in ranking over the past several weeks. Their ranking will begin to improve and the stocks will actually begin to breakthrough the resistance trendlines once the stocks begin to be accummulated by big institutional money money flows.