For investors who use technical analysis to find possible opportunities, the search often comes down to two main questions: which stock is in a good trend, and when is the correct time to enter that trend. A methodical way to answer these questions involves looking for stocks that show both good technical health and a promising price consolidation pattern, indicating a possible breakout. This approach concentrates on the strength of the main trend and the character of the setup, trying to enter a stock as it starts a new move higher from a time of rest.
Aflac Inc (NYSE:AFL), the supplemental insurance provider, currently shows a profile that fits this breakout screening method. According to its ChartMill Technical Analysis report, the stock gets a high Technical Rating of 8 and an equally good Setup Quality Rating of 8. This pairing indicates AFL is both in a technically good uptrend and is also forming a pattern that might come before a notable price move.
Looking at the Technical Strength
The base of a workable breakout candidate is a solid and confirmed uptrend. Aflac’s technical profile shows this base strength across several timeframes. The stock’s Technical Rating of 8 shows a favorable trend structure, which is important for the strategy as it aims to follow existing momentum instead of guessing a reversal.
Important technical positives supporting this rating are:
- Favorable Trend Alignment: Both the short-term and long-term trends for AFL are rated as positive, showing steady buying pressure across different investor timeframes.
- Good Moving Average Support: The stock is trading above all its main simple moving averages (20, 50, 100, and 200-day), and each of these averages is itself in a rising pattern. This layered alignment of support levels is a typical feature of a sound uptrend.
- Sector Leadership: Within the competitive Insurance industry, AFL is a leader, doing better than 75% of its 149 peers. This relative strength is a main filter in breakout screens, as leadership often leads to more leadership.
While the stock is trading in the higher part of its 52-week range, it is seen as slightly behind the wider S&P 500, which is trading near new highs. This detail indicates AFL has possible room to improve if its breakout happens.
Looking at the Setup Quality
A good trend alone is not a buy signal, entering at a high point can lead to quick losses. This is where the Setup Quality Rating becomes important. It finds times of consolidation or "tight" trading, which often give a lower-risk entry point before a possible breakout. AFL’s Setup Rating of 8 shows the stock is in such a promising phase.
The technical report points out a setup marked by recent price consolidation and lower volatility. Specifically, the stock has been trading within a one-month range between $106.32 and $119.32 and is now placed in the middle of this range. This action has let the price move back toward its rising moving averages, making a possible base for the next rise.
The setup analysis finds clear reference points for traders:
- Resistance Zone: A set resistance area exists between $117.15 and $117.47, made by several trendlines. A clear move above this zone could show the start of a new bullish move.
- Support Zone: A solid band of support sits between $105.42 and $111.94, supported by moving averages and trendlines. This gives a reasonable area to place a protective stop-loss order, setting the trade's risk.
- Supportive Signal: The report also mentions a recent "Pocket Pivot" signal, a volume-based pattern that suggests buying by larger investors, adding a note of confirmation to the setup.
A Possible Trading Plan
From this analysis, a sample trading plan is described. An entry could be thought about on a breakout above the resistance zone, for example with a buy-stop order at $117.48. The nearby support zone gives a logical exit point for risk management, with a stop-loss proposed around $110.27. This plan would show a measured risk, aiming to join a confirmed breakout while having a set exit if the move does not work.
Find More Possible Breakouts
The pairing of good technicals and a high-character setup makes AFL a stock to watch for technical investors. For those wanting to find similar opportunities, new breakout setups are found daily. You can see the current list of qualifying stocks by going to the Technical Breakout Setups screen.
Disclaimer: This article is for information only and does not make up investment advice, a recommendation, or an offer to buy or sell any security. The trading plan described is an automated example from technical indicators and is not a promise of future results. All investing and trading has risk, including the possible loss of principal. Always do your own research, think about your financial situation and risk tolerance, and talk with a qualified financial advisor before making any investment decisions.
