Dow 30: The Travelers Companies Trade Recommendation

On April 18, 2018, a short recommendation on The Travelers Companies’ stock was issued. Having met and exceeded its downside target, as well as based on recent price action, the stock is now a technical buy.

Technical Developments since April 18,2018

  • Over the next few sessions, until April 23, TRV continued to oscillate within the narrowing trading range formed by the upward-sloping support (green trendline in Figure 1) and the downward-sloping resistance (red trendline).
  • On April 24, the stock gapped down after a 1Q18 earnings miss (white arrow).
  • After failing to move back above a horizontal support-turned-resistance formed by the Feb and April lows (orange horizontal trendline at $133), the stock slid to as low as $125.15 on May 3.
  • The stock continued to find resistance at the downward-sloping trendline (red trendline) at each retest (last 3 red arrows). On Thursday (June 7 – second last candle), TRV managed to close above the trendline.

Figure 1. TRV Daily Chart

  • On Friday (June 8), the stock broke above the neckline of an inverse H&S pattern (lows – white ellipses in Figure 2, neckline – white downward-sloping trendline).

Figure 2. TRV Daily Chart

Implications

  • The stock is expected to exhibit more bullish momentum after breaking above the red trendline. A move back above the $133 level (orange horizontal line in Figure 1) will strengthen the bullish thesis.
  • The inverse H&S pattern has a minimum upside target of $139 (white vertical line in Figure 2).

Outlook

  • Moderately bullish in the $125 (2018 low) – $133 range.
  • Outright bullish above $133
  • Potentially bearish if the low of the bottoming formation is broken to the downside (i.e. below $125).

Trade Recommendation

  • Buy half a position at current levels ($131.32 at EOD on Friday, June 8). Other half upon a close above $133.
  • Target: Half at $139 (upon a retest of the green trendline in Figure 1 from below & target from the inverse H&S). Half at $143 (yellow horizontal trendline in Figure 1).
  • Stop: Half upon a close below $127.50 (below bright blue horizontal trendline in Figure 2). Half upon a close below $125.

Disclosure: No position, may initiate a long position next week.

Featured image courtesy of Shutterstock. 

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