SLF – Sun Life Financial Coming Out of the Blue!

The last quarter was a painful one for Sun Life shareholders (and probably management).  The life insurers in Canada have been forced to adopt IFRS accounting standards and by adopting these strict standards, stricter than Canadian GAAP and American GAAP for that matter, they have been forced to endure losses on their income statements and write-downs on their balance sheet.  We just received the year-end financials for both Sun Life (SLF) and Manulife Financial (MFC).

The exciting part is that in the last week, SLF’s share price has transited above EBV-3.

Sun Life with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of SLF subsequent to this post will be maintained on Facebook, here.

Why should you care?

A trader/investor should always keep an eye on transits up through EBV-3.  We call this “Coming out of the blue”.  Why?  Subsequent to an upward transit of EBV-3, stocks tend to have powerful moves, price wise, that can take a stock from EBV-3 to at least EBV, or EBV+2.  Sometimes investors, if patient, can ride their winners all the way to EBV+5.

We look for “break out/pull backs”, for higher probability trades.  This occurs when a stock transits above EBV-3, then pulls back under, then breaks above again over a period of weeks/months.  To us this means the market is undecided in terms of the price action which zone the stock belongs.  When the market does decide to stay above EBV-3 (for a second or third time), which could coincide with news and/or corporate action, the price action is very positive.

Obviously, if the stock transits down through EBV-3, all bets are off!

We are also keeping an eye on Manulife Financial as well.

Manulife Financial with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of MFC subsequent to this post will be maintained on Facebook, here.

With the Canadian life insurers “breaking above the blue” is a very positive signal not only for the insurers such as Sun Life, but also for the market as a whole.  The last 5 years have not been fun for the above noted insurers and their shareholders.  However, there are signs of spring after a very harsh winter, which is very welcome.