Zak Mir on rugs, pulling and insurers!

I have to confess that one of the more beneficial aspects of largely being focused on technical analysis rather than fundamentals, is that with regard to some of the less exciting sectors of the stock market like insurers, one is able to avoid getting bogged down in what can be mind numbing number crunching & dullness!

Still, at least in the wake of one of the most dull events of the financial calendar – The Budget, we have seen some action in selected financials. That said, for this year’s tax raising / business obstruction festival (!), our newly “slim” Chancellor George Osborne has focused on the pensions industry and the idea that we have perhaps not received the most impartial advice in this area in recent years. Just what the definition of impartiality actually is may be something of a moot point. Nevertheless, the aftermath of his speech has seen chunky losses for all the key players in this area.

At this same time the beneficiary of the new regime, financial services group Hargreaves Lansdown (HL.), has seen its stock resume an extended bull run. In fact, there are a few interesting charting lessons to learn from the recent price action of Hargreaves Lansdown on its daily timeframe.

Apart from an extended RSI support line from October at 35 – a feature which provides backbone to the price action, we also have a rising trend channel based at the current position of the 10 day moving average at 1,360p. The big buy trigger and a setup to watch out for in general was the “narrow” bull trap rebound. This consisted of a slight overshoot on the former February 1,295p intraday low, with this month’s floor just 8p lower. The opportunity came both in the way of Monday and Tuesday’s end of day closes back above 1,295p. The situation after the explosion to the upside is that those long of the shares would be trailing an end of day close stop loss at the 10 day moving average. The target over the next 2-3 weeks as high as the October price channel top at 1,650p.

Getting back to the losers in the battle for giving pensioners a fair crack of the whip – what with 5 years of near zero interest rates killing their savings in order to save RBS (RBS) / HBOS notwithstanding, it is worth looking at the breakdown for the insurers.

What I like to do in such situations is attempt to glean how much of the “shock” move to the downside showed up ahead of time on the chart? In the case of Aviva (AV.) perhaps the big trick here for the bulls ahead of the Wednesday’s sell off was how the stock managed to remain so far above the floor of the March gap at 468p. But what is most intriguing, is the way that the low of the day was 472.5p ahead of a close of the 490p close. This failed gap fill can not only be regarded as a buy signal, but while it remains unfilled – there is no end of day close back below 468p, we can regard Aviva as being a very strong buy the dip prospect. At the very least, the strategic call here would be that after the sharp flush out, most of the weak bulls will have been stretchered out of the amphitheatre. A rebound to partially or even fully retest the March 528.5p intraday peak may be on offer as soon as before the end of this month.

Finally, the charting position of Resolution (RSL) is a standout for a couple of reasons. The first is that the stock was already on the back foot ahead of the Chancellor’s latest efforts, with the second the way that after a very deep dive for the price action to well below 300p we witnessed an end of day close back above the 200 day moving average at 334p and the December gap floor at 327p. It could very well be that those looking to bottom fish this stock use an end of day close back below 327p as their relatively tight stop loss. The hope would be that while above this chart feature Resolution could at least head back towards the former November – January resistance zone just below the 50 day moving average now at 363p.