China Life Insurance Co. Ltd. stuck in a range

Jan 12th, 2011 – 1 Comment

If you are interested in LFC you have to be comfortable trading it in the range until it either breaks above resistance at $70.00 of breaches support at $60.00.


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Hello Lou,

I wonder whether LFC-NYSE, supposedly one of the largest insurance
companies worldwide, is ever going to recover from its mediocre
standing. Regarding the supposedly falling US $ and China owning so
much of it, what are the affects on LFC or are insurance and
financial companies just not in the picture compared to commodities.

Thank you

Jay

Hi Jay,

China Life Insurance Co. Ltd. (LFC TSX) is one of largest insurance companies with a market capitalization of $116.56B. Insurance companies, regardless of where they operate earn income from the premiums that they charge and the investments that they make with the capital not used to pay out benefits. The insurance industry as a whole has had a rough go of it since 2008 given market volatility, low yields on fixed income, destruction of asset values in the U.S. real estate market, and a host of other factors.

Your concern regarding the U.S. dollar is a valid one given that it is the reserve and vehicle currency of the  international financial system. Governments hold the greenback as part of their reserves and its used extensively for international trade. The issue isn’t that the U.S. has gone down as much as the pace at which it may continue to fall.  The value of the U.S. affects all assets from commodities to stocks and bonds. Given that insurance companies hold financial and real estate assets they are exposed to movements in the U.S. dollar.

The charts will provide some guidance as to the potential opportunities with LFC.

The three year chart illustrates the uptrend that took the stock from the March 2009 lows to the high in November of 2009. Since then the stock has been somewhat range bound with support at $60.00 and resistance at $70.00. With this sort of pattern you have to trade the stock in the range to generate a return or be happy with the 2.49% dividend yield until a new uptrend is established.

The six month chart depicts the buy signal generated by the MACD and RSI in September of 2010 which saw LFC run from $57.00 to almost $72.00. By late October the MACD and RSI both indicated a shift in momentum to the downside. A double top also formed by mid November which is a clear reversal pattern. From there the stock pulled back to $61.00.

If you are interested in LFC you have to be comfortable trading it in the range until it either breaks above resistance at $70.00 of breaches support at $60.00.

Happy Capitalism!

Categories: Insurance
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