TRAVELERS LEADS PROPERTY & CASUALTY INSURANCE STOCKS HIGHER -- LIFE INSURANCE STOCKS ARE ALSO STRENGTHENING -- LEADERS INCLUDE LINCOLN, METLIFE, AND AFLAC -- COAL STOCKS MAY BE BOTTOMING -- LEADERS INCLUDE JAMES RIVER, CONSOLIDATED ENERGY AND PEABODY
TRAVELERS LEADS PROPERTY & CASUALITY INSURANCE GROUP HIGHER... Insurance stocks are attracting a lot of new money into a reviving financial sector. Chart 1 shows the Dow Jones US Property & Casualty Insurance Index surging to the highest level in five years. Its relative strength line (below chart) is starting to break out to the upside. The main catalyst behind today's buying is coming from Travelers. Chart 2 shows Travelers (TRV) surging to a new record high. New records are also being hit by Ace and Chubb. As good as their performance is, many investors may shy away from buying them because they've already had a strong run. Fortunately, there's another insurance group that's starting to attract new money, but looks a lot cheaper.
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Chart 1
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Chart 2
LIFE INSURANCE STOCKS PERK UP ... Life insurance stocks are also starting to move up in the sector relative strength rankings. Chart 3 shows the Dow Jones US Life Insurance Index reaching a new six-month high. Its relative strength line (below chart) has been rising since July (see rising line). The rising life insurance index now appears headed for a test of its spring high. The ability of its blue 50-day average to cross above the blue 200-day average (called a Golden Cross) is another positive technical development. One of the appealing features of this group is that it still looks cheap relative to other insurance groups (see Chart 1) and the market in general.
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Chart 3
LIFE INSURANCE LEADERS ... Three life insurance leaders are shown below in ascending strength. Chart 4 shows Lincoln National (LNC) testing its September high near 26. A close through that barrier would put the stock at the highest level since the spring. Its relative strength line (below chart) has been rising since July. Chart 5 shows Metlife (MET) already trading at a new six-month high. Chart 6 shows Aflac (AFL) trading at a new 52-week high. AFL is the strongest of the three life insurance stocks. Property & casualty stocks offer stronger performance. Life insurance stocks, however, may offer better long term value and cheaper entry points.
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Chart 4
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Chart 5
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Chart 6
COAL STOCKS START TO RISE... Energy stocks have had a strong week. One of the week's strongest energy group has been coal. Chart 7 shows the Dow Jones US Coal Index trading a new five-month high and nearing a test of its 200-day moving average. Its relative strength line (below chart) is starting to rise as well. One of the strongest stocks in that index is James River Coal (JRCC). Chart 8 shows that coal leader rising above its 200-day line in heavy trading. Its relative strength line has spiked higher as well. Several other coal stocks are starting to rise as well.
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Chart 7
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Chart 8
CONSOLIDATED ENERGY AND PEABODY ARE ALSO COAL LEADERS... Chart 9 shows Consolidated Energy (CNX) reaching a new eight-month high after having cleared its 200-day average (on rising volume). Chart 10 shows Peabody Energy (BTU) on the verge of exceeding its 200-day line which makes it another coal leader. Two other coal stocks (not shown) that may be bottoming are Alpha Natural Resources (ANR) and Arch Coal (ACI).
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Chart 9
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Chart 10
HIGH YIELD BONDS RISE WITH STOCKS AS TREASURIES SELL OFF... Tuesday's message shows the S&P 500 bouncing off its 50-day average to keep its uptrend intact. This week's stock rebound (supported by better sentiment in Europe and strong news in the housing industry) is having a different impact on various bond categories. High yield bonds are more closely correlated to stocks than bonds. As a result, they've risen with stocks this week. Chart 11 shows the High Yield Corporate Bond iShares (HYG) rallying to its September high after surviving a test of its 50-day line. As is usually the case, rising stock prices are hurting Treasuries. Chart 12 shows the 20+Year Treasury Bond iShares (TLT) falling dangerously close to its 200-day line. The long Treasury bond is most vulnerable to rising bond yields resulting from a stronger stock market.
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Chart 11
