Shares of The Allstate Corporation ALL have become very overbought in the short-term and could be due for a correction.
Is that enough evidence for the bears to take serious positions against the stock?
What The Bulls See…
• A stock with a strong technical picture.
• A company with cheap valuation metrics, including a price-to-sales of 0.77, a price-to-book of 1.27 and a price-to-earnings ratio of around 11 times next year's consensus estimates.
o An enterprise value that exceeds the company's market capitalization.
What The Bears See…
• An overbought stock that's getting very close to major horizontal line resistance created by its all-time highs back in 2007.
Technical Take…
Technicians likely say Allstate shares have new near-term support at $57.19 with more horizontal line support at $51.20.
Resistance for the stock still comes in at the horizontal line resistance levels of $63.22 and $66.14.
The stock is very overbought on the monthly chart and sports an RSI reading of nearly 80.
Shares have been at these levels twice in the last couple decades, between 1996 and 1998 and in mid-2005. In each case, Allstate eventually traded lower by over 50 percent in the two years that followed.
Thus, for technicians to indicate Allstate should trade down to the $35-37 range is not a shock at all.
Overall…
Allstate shares continue to be one of the leading financial issues in the marketplace.
However, buying at or near the 52-week highs in conjunction with overbought RSI readings has historically been a bad move.
Anything is possible, but it's a good idea for prospective longs to wait until the stock has pulled back to support -- in conjunction with oversold levels -- to start new positions.
Disclosure: At the time of this writing, the author had no position in the equities mentioned in this report.
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