With all the Severe Weather What About Insurance?

• Posted by Greg Harmon
• on April 27th, 2011

Two insurance giants with big business in Japan report earnings Wednesday after the close. These companies basically make money by placing bets on the potential outcomes of the events they insure, by mispricing the risk. There will be a lot of discussion on their calls about the earthquakes and tsunami, but probably no real solid numbers around those claims yet. Of course that does not matter to the market. A consensus will form and play out in the stock price, until it is proved either right or wrong. So how do the charts of Allstate (ticker:$ALL) and Aflac (ticker:$AFL) look heading into these reports? Lets take a look.

Allstate, ALL

Allstate has been in a symmetrical triangle since at least the beginning of the year. It has just bounced off of the top rail near 32 and moved lower Tuesday. The Relative Strength Index (RSI) has been vacillating around the mid line, directionless, since it has been in the triangle and the Moving Average Convergence Divergence (MACD) indicator has been flat for that duration. The Simple Moving Averages (SMA) are relatively flat as well. As it moves toward the apex the Bollinger bands (BB) are tightening, getting ready for a move. The pattern would call for a $3 move upon a break out and earnings could be a catalyst. As of the close Tuesday a May 32/31 Strangle cost $1.00 one way to consider playing the earnings.

Aflac, AFL

Aflac went through a 50% correction from its move higher when the Japanese earthquake struck. It has now retraced half of that and is trying to move higher aided by the rising 200 day SMA. With resistance higher at 54.75 it might be short lived but the RSI and MACD are supporting more upside. If it can get through that level then there is some resistance at the 56.50-57 area and then the February/March high at 59.54. Also above the 54.75 level would mean a higher high to follow the higher low and signal a confirmation of a trend higher. A bad response to earnings should see support at the 200 day SMA and then the 51.79 area.

How do you price the risk? Place your bets and good trading!

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