Travelers (TRV) has declined the past two weeks, breaking below the 50-day moving average line and nearly touching the rising 200-day moving average line. Is this pullback a potential buying opportunity or is more caution warranted for this member of the Dow Jones Industrial Average?
Let's see how much damage has been done to the charts and indicators before we answer the question above and suggest a trading strategy.
In this daily bar chart, above, we can see how TRV made a "V-like" bottom back in November. Prices rallied strongly until late December and the subsequent pattern has been an upward-sloping channel. This pattern can also be defined by the rising 200-day moving average line. Declines or dips toward the average line have found support -- in January and April and so far this week.
The big difference between these earlier pullbacks and today is that the previous dips were early in the trend. Trends mature and age and they can weaken. "Buying the dip" can work until it doesn't work. As TRV rallied from November, the daily On-Balance-Volume (OBV) line rose until early this month. The OBV line has a downward slant this month, telling us that sellers of TRV have become more aggressive.
In the lower panel is the Moving Average Convergence Divergence (MACD) oscillator, which shows a lower high in August than in June. The oscillator is about to cross the zero line for an outright sell signal.
In this weekly bar chart of TRV, above, we can see prices have dipped to test the rising 40-week moving average line. The volume of trading has slowed from the levels seen in October and November and that is a caution flag, as we like to see volume increase in the direction of the trend. The weekly OBV line confirmed the rally from 2014 but the line has turned flat to slightly easier the past three months and this suggests that buyers of TRV are not as aggressive and the sellers are stepping up the pace. The weekly MACD oscillator has crossed to the downside for a take-profits sell signal.
In this Point and Figure chart of TRV, above, we a see a downside price target of $114.64. On the left side of the chart is the Volume at Price date and it looks like the $114 area should be good support; unfortunately, this is below the 200-day moving average line and the 40-week average line.
Bottom line: TRV could hold above $122 and rally again, proving that "buy the dip" still works, but the indicators do not give us that confidence. Traders and investors in TRV should move slowly, waiting to see if prices will hold or move still lower.