Allstate (NYSE:) is the second-largest home insurance company in Louisiana, the U.S. state just struck down by Hurricane Ida, the 250-mph giant of a storm that left more than 1 million people without power earlier this week. in the region, and at the time of publication was reported to have killed five people. Described as "one of the most powerful hurricanes to ever hit the U.S. Gulf Coast," Louisiana Governor John Bel Edwards described the damage done by the storm as "catastrophic."
Ironically, Ida struck the state exactly 16 years after Hurricane Katrina, which decimated New Orleans, Louisiana's largest city, among other municipal casualties and killed 1,800 people.
Although State Farm is the largest home insurance company in the area, it is privately owned. Thus, Allstate is the largest publicly traded home insurance company awaiting the many expected claims from the devastation, making it the industry company likely to be most affected by Ida. Allstate has had teams in neighboring countries since Monday, ready to facilitate the many expected claims.
Early estimates estimate costs to insurers between $15 and $20 billion, with some media sources as high as $30 billion. However, insurers and the general public are likely to learn more in the coming days. How could the sheer number of claims affect inventory?
Within the first three months after Hurricane Katrina, stocks of Allstate initially fell, before going sideways for another eight months. After that, the stock rose five of the next six months and reached new highs.
Let's compare that to the current price action for ALL.
The stock opened the week with a sharp decline and has fallen below the upward trendline since the monthly low. The price was already peaking as it approached the May-June highs, indicating weakness.
If the price remains on track and falls below the June 18 level of $123, it will have reached a double bottom. Note how the 200 DMA rushes to provide support to the neckline, revealing its significance in the supply/demand balance.
The ROC, a more sensitive momentum-based indicator than the more commonly used RSI, has already fallen below its upward trendline and the MACD's short MA is about to move below its long, triggering a sell signal. Note how the MACD also peaked well below its activity during the May-June price spikes. the neckline and 200 DMA, then wait for a return move confirming the renewed resistance.
Moderate traders would go short if the price retests recent highs, or after it has fallen below the neckline.
Aggressive traders can now go short, provided they understand and accept the increased risk associated with going ahead of the rest of the market.
Trade sample
Admission: $135
Stop Loss: $140
Risk: $5
Target: $105
Reward: $30
Risk: Reward Ratio: 1:6
