Stock Chart Analysis LNC
Lincoln National Corporation(Public, NYSE:LNC)
There is an interesting trade setting up in Lincoln National Corporation (NYSE:LNC). LNC has been very strong the past few months, along with its peers in the Life Insurance sector. It rallied close to 300% from the March low to the recent high near $20. While the rally was large in terms of percentage gained, it really looks like part of a much larger consolidation range that began last November. Notice LNC had a similar rally off the November lows, which capped a nasty bear market correction of over 80%. LNC failed to reach the high it put in in January and appears to be pulling back again.
While I am not typically a fan of shorting stocks in intermediate uptrends, this is looking like a very good setup in terms of risk versus reward. LNC is showing weakness by setting a lower high, and recently gapped lower after failing to clear the 200-day moving average. It retraced and filled the bearish gap and is starting to drift up in what looks like a small bearish wedge. A break of the bearish wedge, which also coincides with the 50-day moving average could signal a continuation of the weakness initiated by the gap down.
The reason I like the risk versus reward here, is that the target for a short trade are is much larger than what I would need to risk. On a healthy uptrend, stocks can typically retrace about 1/2 of the last leg up. This is a normal retracement that wouldn't signal a major trend change. Looking at LNC, the 50% retrace level is near $12.40. With a stop near $17.10, this leaves us with about $1 risk and a $5 reward. These are the types of setups that will payoff even with a win percentage under 50%. I'll be watching LNC for a break of this wedge, especially, if the markets continue to pullback.
Good Trading,
Joey
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