Looking through the Canadian insurance companies, I was not surprised but I think it is worth noting how weak they all are. When an entire industry group makes up a very weak sector, it is good to avoid. But there is always a time to get back in. This article shows a suggested methodology for doing that. The SCTR information can also be used to help us see turnaround situations. We can set an SCTR level as a target for them to break out. When they stop being the weakest stocks as a group, we can start to look at them again. This style of investing with the SCTR is harder, but you are typically buying closer to the lows.
Here is Great-West Lifeco (GWO.TO). The SCTR ranking is now below 10. This is the lowest level in 5 years. At this point, there is no reason to invest in the industry, but we can set an alert when the SCTR starts to improve above 25. We can do that for each stock. The run off the SCTR lows in 2014 was a pretty good rally for a beaten down stock.
Here is Manulife Financial (MFC.TO). The stock doesn't trend for a long time, but the 3 to 6-month runs can be very profitable. I have drawn a line on the low 2014 SCTR level and a break back above. We can mark the same notice on the low levels now.
Here is Sunlife Financial (SLF.TO). We can see the SCTR is the lowest in years as well. The last time the SCTR was this low was late 2011. The SCTR is really breaking down for all of 2016. The last two lows were around 30 but this year is a different level of weakness.
Here is Fairfax Financial (FFH.TO). The SCTR is hovering around 30, so it is not as low as the others. It is still registering 5-year lows this year. The chart is technically bullish as long as it starts to rise up from here. I'll be watching for the industry group to strengthen to confirm this has the power to break out to new highs.
Power Financial Corp. (PWF.TO) owns some insurance companies. The chart has really been weak. It has not had a weekly close below $29 since 2013.
Power Corp. Of Canada (POW.TO) is the parent company of Power Financial. This nested ownership structure obviously affects all the charts. POW.TO also has a very low SCTR.
Here is Intact Financial (IFC.TO). Stuck in a sideways channel for 18 months, the SCTR at 30 shows there have been better investments as the price action is near the highs but other stocks have moved up faster. A break to new highs would be bullish, especially if the rest of the insurance stocks started to improve from below 25 to moving above.
The only exception is Industrial Alliance Life Insurance Co (IAG.TO). This is the only insurance company that has an SCTR above 60. However, last week had a range from $39 to $46! There were a few upgrades by analysts last weekend to Sector Perform. That doesn't sound like an upgrade based on the charts above. The upgrades were the only reason I could see in news feeds for that much volatility. The bottom line is the stock needs to break out above the two-year range.
If we see a change in trend for the interest rates, that would help these stocks. Set a few alerts to help you see them improving as a group. The alert criteria for the SCTR would be something like this. Technical alerts are set on the Members tab about 8 lines down.
[symbol = 'SLF.TO'] and [SCTR x 30]
Do that for each one and when they all start to turn up above 30 as a group, you'll be ready to get onboard.
Good trading,
Greg Schnell, CMT, MFTA
