The Stock: Sun Life Financial Inc.
Recent price: $28.75
Trend: The foundation of the 2009 bull market rally is starting to show some cracks. The number of Stock Trends Weak Bullish stocks - indicating a stock's share price has dropped below its 13-week moving average trend line support - has risen to 17 per cent of trending stocks on the Toronto Stock Exchange from 8 per cent a month ago.
This tempering of bullish sentiment should have investors looking to lighten up their exposure to sectors that are losing the market's favour and moving toward stocks with stronger bullish trend characteristics.
The S&P/TSX financials index is underperforming the broad TSX market by 4 per cent in the past three months, with life insurance stocks showing the most weakness in the group. After streaking to sector leadership in the second quarter, insurance stocks have retreated since the summer.
Disappointing third-quarter profits announced last week by the insurers seemed to be largely anticipated by the market, but not enough to spell any relief from more selling.
The Trade: At the end of June, Stock Trends advised a bullish trade on the insurers, in particular the stable under the financial wing of conglomerate Power Corp. of Canada. Although the trade achieved its short-term profit objective in the third quarter before signalling a sell in late October, the past three weeks have been unkind to this and other stocks in the group. Sun Life's stock, in particular, is giving shareholders reason to feel anxious.
Four successive weeks of losses have dropped its share price to the 40-week moving average trend line. Tellingly, the stock remained in the red last week while the other big life insurer stocks finished positive after Thursday's selloff - a sign that more downside risk remains.
Although trading activity was just shy of the level that would trigger a Stock Trends high-volume indicator, last week's 4-per-cent drop by Sun Life was accompanied by relatively high trading volume. Rising trading volume in recent weeks is signalling the market's changing sentiment about Sun Life.
Investors should be concerned about the slip and consider selling the stock on its faltering bull trend and relative underperformance in an already weak sector.
The Upside: The stock will likely maintain support near or above the 40-week moving average ($28.50) with some downside risk to the $26 level. Technical calls to exit Sun Life, like other insurance stocks, focus on the deflated price momentum and absence of convincing signs in the stock's chart for the potential of a significant upswing in the stock.
Exposure to financial stocks can instead be shifted to the retail banks, which have more bullish trend line support than the insurers and the potential for buying presence in advance of their approaching year-end fiscal results.
The Downside: The signal to sell Sun Life anticipates a flat trend in the stock over the next period, keeping the share price sub-$30.
However, the risk is that the market decides the long-term outlook is positive for the sector - a viewpoint that would elevate the stock back to the $32 level.
Long-term shareholders might be happy staying in this zone for a period, but trend followers like to always look for a better friend with more upside.
Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to Stocktrends.ca