The insurance sector offers the best rewards
Last week, after the
breakouts in most of the major indexes the week before, the New York Stock
Exchange Bullish Percent reversed to positive. For those of you
unfamiliar with this indicator, it is the main breadth indicator that
practitioners of the point and figure method follow. In order to reverse to Xs
(or begin to rise) 6% of the stocks on the New York Stock Exchange have to issue
new buy signals. A buy signal is when the current column of Xs is able to rise
above a previous column of Xs, or, said another way; the stock is able to go
higher than it has in the recent past. After the reversal, this indicator is
bullish and suggests that investors be long stocks to the fullest extent allowed
by their asset allocation (risk tolerance).
The “conundrum†if you will with all forms of technical analysis is that you
wait for the demand for the stock or index to grow to the point where it looks
stable enough to buy and the breadth indicators start to improve. But, once that
happens, perhaps the market has gotten to the point where it is too late to buy
and that most things are overpriced. Investors can help mitigate some of this
risk by buying on pullbacks.
In general, I approach entry points by first
waiting for the breakout and then buying on the reversal. Or, I will buy a
portion of the position on the breakout and then buy the other portion on the
pullback. The risk of course is that after the breakout you don’t get a pullback
and you never get the position. Or, if you buy on the breakout, the stock pulls
back and you are stuck with a higher cost than is desirable. Of course, I also
always review oscillators such as stochastics and RSI in order to help me with
the decision.
The Big Three (DJIA, SPX, and COMP) all have an RSI over 70 and are looking
quite overbought. Also, the %D of all three is over 90, another indication of
being overbought. So, the indexes will likely slow down here. However, there are
still some bargains (if you will) in individual stocks. Out of the sectors that
I like the most, stocks in the Insurance Sector seem to still be under owned.
Specifically, I would recommend Allmerica Financial Corporation
(
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PowerRating).
Should the stock go to $36.00, investors should consider selling it.
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Sara Conway is a
registered representative at a well-known national firm. Her duties
involve managing money for affluent individuals on a discretionary basis.
Currently, she manages about $150 million using various tools of technical
analysis. Mrs. Conway is pursuing her Chartered Market Technician (CMT)
designation and is in the final leg of that pursuit. She uses the Point and
Figure Method as the basis for most of her investment and trading decisions, and
invests based on mostly intermediate and long-term trends. Mrs. Conway
graduated magna cum laude from East Carolina University with a BSBA in finance.