Signal Says Take Profits on This Insurance Stock

  The shares of Canada-based insurance provider Manulife Financial (MFC) have rebounded roughly 26% since their Dec. 26 low of $13.33. However, the stock is staring up at familiar resistance on the charts, and its run-in with the 200-day moving average could signal a pullback on the horizon, if recent history is any indicator.

MFC stock is back within one standard deviation of its 200-day moving average, after a lengthy stretch below this trendline. There have been four of these crossroads in the past three years, after which the stock was down 5.14% one month later, on average, per Schaeffer’s Senior Quantitative Analyst Rocky White.  From the equity’s current perch of $16.82, a similar decline would place MFC around $15.96.

Should MFC once again retreat in the face of multi-layered resistance, several analysts could be caught off-guard. The stock boasts seven “buy” or better endorsements, compared to just two lukewarm “holds” and not a single “sell rating.

Plus, while absolute options volume tends to run light on MFC, calls bought to open have outnumbered puts by a margin of more than 25-to-1 in the past two weeks on the major options exchanges. An unwinding of optimism among options traders could also exacerbate losses, should the shares once again retreat.

Traders looking to speculate on MFC’s short-term trajectory can scoop up options at a relative bargain, too. The stock’s Schaeffer’s Volatility Index (SVI) of 22% is higher than just 15% of all other readings from the past year, suggesting near-term contracts are pricing in relatively low volatility expectations at the moment.

Investors expecting a retreat for Manulife stock — or MFC shareholders seeking an options hedge — could consider the April 18 put, which was last asked at $1.30. “Vanilla” buyers of the put will begin to profit if MFC shares breach $16.70 (strike minus premium paid) by the close on Thursday, April 18, when the options expire.