Insurers Building Bases

The financials continue to act constructively, particularly in the insurance groups. This is far from the kind of broad leadership that occurs in a nascent bull market, so if you're looking to trade for the medium term, keep your exposure limited.

Reinsurance underwriter Everest Re is forming a cup-with-handle. Note the progression of higher lows (see Points a, b, c and d in the following chart) within the base.

Insurer Old Republic International (ORI | Quote | Chart | News | PowerRating) is forming a similar pattern, including a succession of higher lows (Points a, b, c).

All stocks are risky. In any new trade, reduce your risk by limiting your position size and setting a protective price stop where you will sell your new buy or cover your short in case the market turns against you. For an introduction to combining price stops with position sizing, see my lesson, Risky Business. For further treatment of these and related topics, you'll find extensive lessons in the Money Management area of TradingMarkets' Stocks Education section.

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