Insurance companies have lagged the broader markets in recent months, but chart patterns are currently suggesting that this could be the sector to watch over for the remainder of 2020. While many sectors have started to move away from the support of their 200-day moving average, insurance companies currently appear poised to move above that level. A break above nearby resistance could be the catalyst needed to send the sector higher, and in some cases, it looks as though the move has already begun.
SPDR S&P Insurance ETF (KIE)
Active traders who are interested in specific market segments such as the insurance industry ought to consider analyzing exchange-traded products such as the SPDR S&P Insurance ETF (KIE). Fundamentally, this fund comprises 51 holdings from across the U.S. insurance industry.
As you can see from the chart below, an ascending triangle pattern has been forming over the past several months. It is interesting to note how the resistance of the triangle is coinciding with the 200-day moving average, which is an influential level watched by long-term traders and used to gauge the direction of the major trend. A break above the 200-day moving average and then the resistance of the triangle pattern could trigger a surge in buying pressure, and some traders may consider anticipating the move by placing buy orders as close to current levels as possible and then protect against a failed breakout by placing stop-loss orders below the ascending trendline.
Cincinnati Financial Corporation (CINF)
As one of the top holdings of the KIE ETF, Cincinnati Financial Corporation (CINF) could capture the attention of traders over the weeks ahead. As you can see from the chart, the strong bounce from the May lows has pushed the price toward the influential resistance near the 200-day moving average.
Followers of technical analysis will want to note how the dotted trendline has also influenced the price in the past. Many traders will likely wait for a move beyond $86 before entering a position in order to maximize the risk/reward of the setup. The price action over the next few trading sessions will likely be a strong clue as to whether the bulls have enough conviction to send the price beyond these key levels of resistance.
Axis Capital Holdings Limited (AXS)
Another chart that will be of interest to active traders is that of Axis Capital Holdings Limited (AXS). This chart is an interesting example of how the stock prices of some insurance companies have already been able to move above the resistance of influential triangle patterns and their respective 200-day moving averages.
In the example of Axis Capital shown below, the break beyond the 200-day moving average suggests that the bulls are regaining the control of the long-term trend. However, the dip back below on Tuesday suggests that some of the bulls are unconvinced. Price action over the next couple of trading sessions will likely indicate whether this is truly the start of another long-term uptrend.
The Bottom Line
Many sectors across the financial markets have moved sharply away from previous levels of resistance such as the 200-day moving averages. Asset prices in the insurance industry have lagged the broader markets, but based on the charts discussed above, shares of insurance companies look well poised to finish the year at prices higher than current levels.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.