Bulls May Need to Take a Short Time-Out on Travelers

 | Aug 10, 2017 | 10:47 AM EDT
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Travelers Cos. Inc. (TRV) has performed nicely since November, but a period of sideways price action might be in order for the next two or three months. A sideways or neutral market does not necessarily mean a top, but rather a pause in an ongoing bull market.

Let's review our charts and indicators to suggest an actionable strategy. In our last update we were bullish and anticipated that "we might see some short-term selling, but the major trend is up. Traders looking to get long TRV should buy strength. Buy a close above $124 and add on a close above $126. Risk a close below $119 after buying. The $160 area is our price target for this bull run."

We haven't reached our price target, but the long side has been the way to go.

In this daily bar chart of TRV, above, we can see that prices are above the rising 50-day moving average line, as well as the rising 200-day line. The daily On-Balance-Volume (OBV) line has climbed nicely since November and confirms and supports the idea of further gains.

In the lower panel, we have the 12-day momentum study, which shows slightly lower highs from June to August, as prices made slightly higher highs. This difference is a bearish divergence, but it is not screaming for us to issue a sell recommendation. This is just a small example of the rally slowing.

In this weekly bar chart of TRV, above, we can see that the rising 40-week moving average line has defined the uptrend the past three years. There are a few instances when prices were below the line, but the vast majority of the price action is above the line.

The pattern of volume since November looks like it is slowing, but the weekly OBV line has been positive the past three years. Recently, it looks like the OBV line has turned flat, in a small divergence to the uptrend. The moving average convergence divergence (MACD) oscillator is in a bullish configuration above the zero line.

In this Point and Figure chart of TRV, above, we can see the uptrend and the bullish price target of $159. A decline to $122.47 would be short-term bearish, and weakness below $117 would be more bearish should it happen.

Bottom line: TRV might need to take a rest before moving higher. A pullback to $126 or $124 would be fine, and even a dip to the top of $122-$120 would not be terrible. Bulls could take a time out.

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