Financial companies have dominated the headlines lately with their volatility and sharp selloffs. However, although the two insurance companies mentioned below have drifted, they are now positioned to benefit from any sort of market rebound, as illustrated by today's price action. Each of the companies have drifted toward long-term support levels, which will likely continue to influence their respective stock prices over the next several weeks. Active traders would expect these companies to find strength near the identified support levels, but will exit their positions at the first sign of weakness by placing tight stop-losses. Let's take a closer look:

Recent broad market weakness has sent the price of ACE Ltd. (NYSE:ACE) below an influential horizontal trendline. As you can see from the chart below, the $54 level has prevented the bears from pushing the price lower since 2006, but the recent close below the support suggests that the story has changed and that the near-term direction of the stock is likely to be downward. The spike in volume that accompanied the move below the trendline will be used by traders to confirm the trend reversal; many active traders will keep a bearish outlook on the stock until the price closes back above ($54).

We've also noticed that the price has reached another important level of support; if broken, this will cause many traders to watch for the pullback to become more pronounced. Notice how the combination of the long-term horizontal trendline and the ascending trendline have propped the price in the past. If the price falls below these levels, it wouldn't be surprising to see the stock head toward the next major support level, which is near $38 (red line).

The Chubb Corporation (NYSE:CB) - On June 11, we noted that that CHB was trading within a horizontal channel pattern and that more time would be needed before traders would see which of the identified levels of support or resistance would be tested first. As you can see from the charts below, the bears have dominated the direction since our last report, but many traders are now turning their attention to the nearby support level to see if it can prevent the stock from falling further. It is important to note that it is not uncommon to see the price briefly move below the trendline. Given the long-term nature of the pattern, traders will use several consecutive closes below the $47 mark to signal a technical breakdown. A sustained drop below the nearby trendline is likely to prompt many traders to readjust their target prices to $40 because this is where the next major level of support is positioned.

For more educational articles see:
Support & Resistance Basics
Support & Resistance Reversals

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Tickers in this Article: ACE, CB

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