This article appeared in the February 2011 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.
By Regina Meani, consultant
As many Australians face the repercussions of disastrous floods, including controversial insurance policies, it is timely to focus our analysis on the four largest companies in the insurance sector - AMP, Insurance Australia Group (IAG), Suncorp and QBE.
AMP is a leading wealth-management company operating in Australia and New Zealand. It has two core business units: Capital Investors, providing funds management, and Financial Services, which offers insurance coverage among its varied services.
Insurance Australia Group is the largest general insurer in Australia and New Zealand. IAG's brands include NRMA, CGU, SGIO, SGIC, Swann Insurance and RACV. It also has operations in the UK and Asia.
Suncorp Group has 10 different brands in Australia, including AAMI and GIO. Suncorp has become a leading general insurer and a diversified financial services group across Australia and New Zealand.
QBE Insurance Group is one of the top 25 insurers and reinsurers worldwide, with operations in all key global insurance markets covering Australia, the Pacific, Asia, the Americas and Europe.
For the most part, long-term trends for these companies are still intact but they obviously face some short-term volatility.
(Editor's note: The ASX Charting Library has definitions on charting terms below.)
Since the late 1990s the price movements of AMP have been a roller-coaster ride with wide swings. Ignoring the notorious "computer glitch" high around $28, AMP has enjoyed highs around $14, with a first low at $2.73 in 2003 followed by a high close to $11 in 2007, then a swing down to a spike low at $3.52 in March 2009.
Providing a pivot in a reversal, the price climbed to re-test an old resistance point around $7 later in 2009, where it paused within a triangle before breaking down in May 2010, indicating a fall towards the $4.70-4.85 support range. The price fell to the top of the support range last August, spurring a rally into the $5.50-5.70 barrier zone.
This area has remained a barrier but the subsequent price churning underneath has some positive aspects with the potential to re-test the zone building. Once clear the shares would regain the momentum to tackle the $7.00 resistance level and move beyond.
The danger to this scenario would be a drop below the recent low at $4.85, returning AMP to the downward path.
AMP weekly chart - January 2006 - January 2011
From an initial base completed in 2003, the share price of IAG rose strongly to peak close to $7 early in 2005. Suffering from momentum exhaustion, the price formed a top that expanded through 2006 to finally break down in late 2007. With a projected minimum downward target to $3.00, the price fell quickly into 2008, found support around $3.20 and momentum decelerated.
The price bounced and rallied strongly towards $4.50 but resistance checked the rise and the price fell into a sideways move, which incorporated a final sell-off to $2.94 in March 2009. Becoming the pivot in a broad and developing reversal, the price continued the sideways move with parameters between $3.20 and $4.20, and a slight downward bias to the pattern: that is, these parameters may slide lower as the phase continues to develop.
The most recent rise to the top of the phase halted at $4.03 in December 2010 and the price is experiencing a pullback to support which is being tested in the $3.50-70 range with back-up around the more critical $3.20.
An upward resolution to the phase has not yet been indicated but a rise through $4.00 would complete the reversal for higher prices, potentially into the $4.50-5.00 area and possibly towards $6.00. The danger to this scenario, while the phase is in development, would be a break below $3.15 triggering a return to the downward path. At this stage the odds favour the reversal for higher prices.
IAG weekly chart - January 2006 - January 2011
3. Suncorp Group
Suncorp enjoyed a strong upward path in the 1990s and early years of the new century, but came to the end of its run in late 2006. The price formed a double top around $21.40, suffering from momentum divergence. Completing the top and breaking its 20-year trend in December 2007, the price fell into rapid decline (with a couple of unsustained reprieves in 2008) to reach a low and turning point at $4.36 in March 2009.
From there the shares launched a recovery that has progressed through two stages. In reaching $9.76 at the end of last year, the price had entered the third stage of the phase, which has broad parameters between $7.50 and $10.50 and a tighter internal range between $8.00 and $9.25 - these provide the short-term triggers. At this stage we do not see an end to the phase and anticipate more churning, with the outcome indeterminate but an upward bias for an eventual break of the upper barrier zone for higher prices towards $12.50-13.50 and possibly much higher.
The risk would be a break below $7.50 signalling a further delay within the phase and the prospect of lower prices in the $6.00-6.50 support range.
SUN weekly chart - January 2006 - January 2011
4. QBE Insurance
QBE's share price has maintained a broadly ranging upward path from the mid-1970s. In dropping towards $16 in November last year it came close to the trend path. When the price reached through $35 in September 2007 it matched the momentum peak from 2001 and set in motion a similar corrective phase, which at that time triggered the return to the base of the trend path.
Although the action was much swifter in 2001, the momentum similarities produced the same need for the price to return to equivalent support. The downward trend from the peak has been volatile and we expect this may continue to affect the price. The most recent wave down was triggered from the resistance in the $25-26 area and pushed the price down through most of 2010. After falling close to long-term support around $16 at the end of last year, the price rose strongly in December to break the 11-month trend.
The rally has halted in resistance around $18.50 and is pausing underneath with support in the $16.50-17.30 range. Although not anticipated in the very short term, a rise through $18.50 would spur a test of $20 and then the more important three-year downward trend around $22.50. Because the long-term trend path is broad, it allows for some price flexibility and there is a little further room before the trend would be broken. But a drop below $15 would be considered threatening, although that appears unlikely.
QBE weekly chart - January 2006 - January 2011
About the author
Regina Meani is a freelance consultant in market analysis. She writes reports for research companies and broking houses, and regular columns in the financial press, and often appears in other media forums. She produces a weekly newsletter, Charting Perspectives, for Stock Resource a leading investment newsletter on resource companies.
Her company provides private tutoring and larger seminars, training investors and traders in market psychology, CFD and share trading, and technical analysis.
ASX Charting Library provides a wealth of free material for beginners through to advanced chartists.
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