Brown & Brown, Inc. (NYSE: BRO)

Brown & Brown, Inc., a diversified insurance agency, engages in the marketing and sale of insurance products and services in the United States. Its Retail division provides insurance products and services to commercial, public and quasi-public entity, professional, and individual customers. This division offers property insurance relating to physical damage to property, and resultant interruption of business or extra expense caused by fire, windstorm, or other perils; casualty insurance relating to legal liabilities, workers compensation, and commercial and private passenger automobile coverage. The company’s National Programs division offers professional liability and related package insurance products for dentists, lawyers, accountants, optometrists, opticians, insurance agents, financial service representatives, benefit administrators, real estate brokers, real estate title agents, and escrow agents. The company’s Wholesale Brokerage division markets and sells excess and surplus commercial insurance products and services to retail insurance agencies. Its Services division offers insurance-related services, including third-party claims administration and comprehensive medical utilization management services for the workers compensation and various liability arenas.

Please take a look at the 1-year chart of BRO (Brown & Brown, Inc.) below with my added notations:

1-year chart of BRO (Brown & Brown, Inc.)

BRO had been moving higher from November until the beginning of July. Since May, the stock has created a very important support level at $25 (red), which was also a key resistance prior to May. That $25 level is the “neckline” support for BRO’s head and shoulders (H&S) pattern. Above the “neckline” you will notice the H&S pattern itself (navy). Confirmation of the H&S would occur if the stock broke below its $25 “neckline”. If BRO breaks that level, the stock should move lower from there.

Keep in mind that simple is usually better. Had I never pointed out this H&S pattern, one would still think this stock is moving lower simply if it broke below the $25 support level. In short, whether you noticed the pattern or not, the trade would still be the same: On the break below the key $25 level.

The Tale of the Tape: BRO seems to have formed a head & shoulders pattern. Although a trader could go long at $25 expecting a bounce, the stock’s pattern implies an eventual breakdown. If that happens, a short trade should be entered on a break of the $25 level.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT