Insurance issues Genworth Financial, Inc. (GNW) and MetLife, Inc. (MET) will each take to the earnings stage after the close today. The stakes are high, as these two insurance stocks will help set the mood for the sector. In other words, any factors weighing on GNW or MET could affect other insurance stocks, too. Read on for more on each stock's technical and sentiment backdrops.
Genworth Financial, Inc. (GNW)
First up: Genworth Financial, Inc. (GNW). GNW has a relatively strong history in the earnings spotlight, with the financial security reporting better-than-expected profits in three of the last four quarters. In the most recent quarter, though, GNW failed to live up to analysts' expectations. This time around, analysts are expecting the company to post a profit of 28 cents per share.
Heading into tonight's report, sentiment is somewhat mixed. According to Zacks, seven analysts call the stock a "strong buy," nine rate it a "hold," and one brokerage firm deems GNW a "sell." This configuration leaves GNW vulnerable to upgrades or downgrades, depending on the company's earnings performance.
Option players are more resoundingly skeptical, though, as indicated by GNW's Schaeffer's put/call open interest ratio (SOIR) of 1.37, in the 91st annual percentile. In other words, short-term traders have been more pessimistically aligned toward the shares just 9% of the time during the past year.
Similarly, traders on the International Securities Exchange (ISE) have bought to open 2.4 puts for every call during the past two weeks. This ratio ranks in the 98th percentile of its annual range, revealing that speculators on the ISE have seldom initiated bearish bets on GNW at a faster pace.
In keeping with this bearish trend, on Wednesday, the August 15 put was most popular, with 449 contracts traded -- most of which traded at the ask price, revealing they were likely purchased. Overnight, open interest at this strike increased by over 400 contracts, revealing the addition of fresh bearish bets at this strike.
However, it seems a portion of these 15-strike puts were part of a pre-earnings spread. Late Wednesday morning, 391 August 15 puts and 391 August 16 calls, each marked "spread," changed hands closer to their respective ask prices. By initiating this long strangle, this trader is counting on GNW to swing significantly above, or below, its current perch at $15.56.
Technically speaking, either of the aforementioned scenarios is possible. Since May, the stock has been stuck in a pattern of horizontal movement, confined by the $13 level on the downside and its 20-week trendline on the upside -- which is located just beneath the $16 level.
Ahead of earnings, GNW appears to be making a run at this important moving average. However, since the stock has not closed a week above this trendline since May 14, the outcome of tonight's report could catapult GNW above support, or smack the insurer back beneath resistance.
MetLife, Inc. (MET)
Meanwhile, analysts are expecting a profit of $1.03 per share for MetLife, Inc.'s (MET) second quarter. MET has a fairly solid history on the earnings stage, beating analysts' forecast in three of the last four quarters, and meeting consensus estimates once.
In fact, analysts are optimistic about MET, with 14 of the 17 brokerage firms covering the insurer rating it a "buy" or better, according to Zacks.
Option activity was fairly bullish on Wednesday, with the September 38 call being the day's most popular strike. Over 4,050 contracts changed hands on this strike -- 100% of which traded at the ask price, indicating they were purchased. Overnight, open interest increased by some 3,800 contracts, revealing that these calls were bought to open. With MET trading just above $40, these calls are in the money.
In the front-month series, 2,038 contracts traded on the August 38 put -- the majority of which changed hands at the bid price, indicating they were likely sold. Overnight, open interest at this strike increased by roughly 2,000 positions, revealing these puts were sold to open. By selling to open the August 38 put, traders are counting on MET to remain above the $38 level over the next few weeks.
Technically speaking, this may not be a problem, as peak put open interest for the August series can be found at the 39 strike, with 4,620 contracts in residence. This, along with the 4,425 contracts at the 38-strike put, could provide options-related support for MET going forward.
Additional technical footing for MET could come from its 10-week moving average. This moving average acted as support for MET earlier this year, then switched roles to serve as resistance. Going forward, this intermediate-term trendline could once again provide support for MET.
Heading into tonight's earnings report, MET is in a pretty solid situation. Should the insurance issue beat analysts' expectations once again, a bounce off trendline support could give MET new life on the charts.
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