Why Is Alfac Stock Falling Today? Profiting From Stock Downgrade By FBR Capital

A lot of emails are arriving this afternoon asking Why Is Aflac Stock Falling Today? The reason is a downgrade by FBR Capital of Aflac Stock before the market opened today.

When a stock is downgraded, it often opens up new trade opportunities. Other times the downgrade drops the stock quickly but the recovery is so fast that the trade opportunity quickly disappears.

However a downgrade often sets a stock up for additional pullbacks in coming days. I believe that will be the case with Aflac Stock. The stock has been on a tear recently and if you recall, on May 6 I advised that I was selling out of my shares of Aflac Stock. Here is the link to that Aflac Stock trade alert. I may have been too early.

Why Is Aflac Stock Falling Today? – It Is Overvalued

In my opinion the downgrade by FBR Capital was overdue. I have written several times that Aflac stock is overvalued at present levels.

FBR Capital have revised their outlook to market perform from outperform. They also lowered their target for Aflac Stock to $68 from $71. It may seem somewhat odd that they lowered their trade when the stock itself is already above their target price but often this is to assist in readjusting or rebalancing portfolios for investors.

Many other investors believe these downgrades of individual stocks are often attempts to suppress the stock’s price and allow more of their clients to enter at a better price before it moves higher. Stocks are often easy to manipulate and a stock in a rising pattern or falling pattern are often targets of downgrades and upgrades that seem to manipulate a stock’s direction.

Manipulation? You Bet

This article which I wrote in August 2011 looks at market manipulation in general. Personally I think manipulation happens all the time but as a small investor there is not a lot I can do about it. Instead I keep my trade alerts set to keep up-to-date with a change in a stock.

Whatever the case Aflac stock did pullback this morning to $68.23 but then moved back up to close at $69.18 for a gain of 54 cents or 0.79%.

Aflac Stock Chart – 6 Months

The Aflac Stock chart for the past 6 months shows the run-up in the stock since February.  The latest earnings on April 26 boosted the stock further and pushed it to a 52 week high of $69.60. Today’s closin price placed Aflac Stock well within reach of that 52 week high.

The technical indicators for the stock are interesting to review.

Aflac Stock – Down Signals

The Slow Stochastic issued a sell signal on April 21 in the stock. Instead of selling off, the stock continued to climb, yet the Slow Stochastic refused to change its signal and continued to point down for the stock. Yesterday May 9 it issued the first up signal on the stock since April 21, which was confirmed today.

At the same time both the rate of change and momentum indicators turned down and continued to fall even though the stock was moving higher.

When this type of signal appears and the stock continues to move higher, it is a perfect time to use stop-losses on a stock trade. This often allows an investor to continue to follow the stock higher but works to protect both the capital in use and the existing profit, in the event that the technical indicators are correct and the stock does pullback. These signals were another reason why I sold my Aflac Stock position on May 6.

Why Is Aflac Stock Falling Today

Why Is Aflac Stock Falling Today

Why Is Aflac Stock Falling Today – Profiting From Downgrades

When a downgrade is given by a company there is almost always a sharp pullback, but often when a stock is in an uptrend such as in the case of Aflac Stock, the morning drop in the stock after the downgrade, is an opportunity for trading.  Most of the time though, it depends on just how deep and long the dip is.

If you look at the Aflac Stock 5 day 5 minute chart below you can see the morning drop on the downgrade. Aflac Stock fell to $68.23 and recovered within 2 minutes.

This is because a stock such as Aflac Stock is being held by institutional investors. With Aflac stock in an uptrend, any investor who wants to buy or trade the stock, is looking for an opportunity to jump in at a lower price. The downgrade created that opportunity but for just a short few minutes.

I received a trade alert right at the start of the day because I have my alerts set for half a percent move in Aflac stock. The drop at the open was larger than half a percent which triggered the alert. I immediately went to the stock but was unable to buy shares quick enough as within 3 minutes share prices were higher than Monday’s closing price.

But it is important to keep the trade alert in place because often a downgrade of a stock is followed by additional downgrades by other analysts. This weakens a stock’s advance and could create more trade opportunities in the next few days.

Aflac Stock 5 Day Chart to May 10 2016

Aflac Stock 5 Day Chart to May 10 2016

Other Analysts Aflac Stock Ratings

Of the analysts I follow 8 have moved from a buy to a hold rating on the stock in the past week. This is basically the same as a market perform. 2 analysts still rate the stock a buy and surprising to me, 3 are rating it a strong buy. There are no sell ratings, which is very rare for analysts anyway and no underperform ratings.

Aflac Stock – Overvalued

I believe Aflac Stock is overvalued and should pullback shortly. At that point I will be back trading Aflac Stock. So now you know Why Aflac stock Was Falling Today and how to profit from such downgrade notices in the future. Keep your trade alerts up-to-the minute for Aflac Stock as I am expecting more alert notices shortly.


Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. Trade at your own risk. Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.
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Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. Trade at your own risk. Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.

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