The financial sector, along with other value-oriented sectors, is beginning to significantly underperform the major equity benchmarks over the last six weeks. We’ll share a potential short candidate, close to breaking down through a key support level that could indicate much further downside to come. First, let’s visualize the relative performance of the financial sector, along with three other value sectors that have all shown deterioration since April. Into mid-April, all four of these sectors – financials, industrials, materials, and energy – were scoring new relative highs versus the S & P 500 index. But as the AI trade has continued to dominate investors’ thinking, and leadership has narrowed into mega cap growth stocks, the relative strength lines for these value sectors have all turned south. In searching through the financial sector for an actionable chart to play potential downside, I discovered that Progressive Corp. (PGR) is showing all the signs of a bearish rotation. PGR had been in a primary uptrend from July 2023 through Q1 2024, making a fairly consistent pattern of higher highs and higher lows. Then in April and May of this year, those higher prices were matched with weaker momentum readings, as represented by the RSI indicator sloping downwards. Following this bearish momentum divergence, the stock broke down through its 50-day moving average, which has now flattened out. PGR has transitioned into a consolidation phase, settling into a trading range between support around $202 and resistance around $215. This week, as the price retested support at $202, Progressive has now broken below a trendline formed by the major lows over the last 12 months. After a setup like we’ve observed for PGR, it’s all about the “trigger” which in this case would be a confirmed break below support at $202. If that level fails to hold, then Progressive would be rotating from a consolidation phase to a distribution phase, implying further lower lows and lower highs in the coming weeks. I’m also watching the RSI to see if it breaks below 40, as that often confirms a bearish momentum picture. In terms of potential downside targets assuming this breakdown is confirmed, I’m using Fibonacci retracements to anticipate probable areas of support. Using the July 2023 low and the May 2024 high, that results in a 38.2% retracement level around $177, which comes in right around the 200-day moving average. If we would see a decline of 13% for PGR to reach that support level, I would be inclined to revisit the long-term structure and identify potential entry points. Timing is everything for investors, and as our review of Progressive shows, the timing may be right for a new downtrend phase for this former high-flying insurance stock. -David Keller, CMT marketmisbehavior.com DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
