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Travelers Companies' (TRV) 8% Crash: Bad Earnings Report, Or…?

One explanation made mainstream sense. The other one helped investor's manage risk.

by Nico Isaac
Updated: November 11, 2019

Last month, U.S. insurance giant Travelers Companies, Inc. couldn't open its iconic red umbrella fast enough to protect against a deluge of falling share prices.

This chart from Google captures the stock's October 22 nosedive, an 8%-plus fall which marked the insurer's biggest single-day drop in over a decade.

11819TRVgoogle

According to mainstream analysis, one main event caused Travelers' October crash: a disappointing third-quarter earnings report, which went viral on October 22. These headlines about the move set a clear, news-driven tone:

  • "Dow Component Travelers Disappoint on Earnings" (Oct. 22 MarketWatch)
  • "Shares of Travelers dropped more than 8% after the insurer reported weaker-than-expected quarterly earnings. ...its biggest one-day drop since Dec. 1, 2008" (Oct. 22 CNBC)
  • "Why the Travelers Companies Stock Lost 12% in October... October's slump was driven by Wall Street's lukewarm reception of Travelers' third-quarter earnings results." (Nov. 8 Motley Fool)

So, Travelers stock falls the very same day as a negative earnings report is released. It makes perfect sense, in terms of market "fundamental." But did this after-the-fact explanation help investors manage the stock's dramatic downside risk (or, take advantage of the sell-off)? No.

Let's use this analogy: Imagine getting into a fender-bender. When the police officer arrives on the scene, you tell him you're not currently insured, but will be getting insurance now -- after the crash. Your next call would likely be from inside a jail cell.

Insurance, like a trade setup, only works if you're prepared for sudden moves before they occur. This is where our October 10 Trader's Classroom comes in.

In that video lesson -- posted 12 days before Travelers stock crashed -- editor Jeffrey Kennedy showed subscribers this daily price chart and warned that the risk was to the downside.

101019TRVtradersclassroom

Listen to a short excerpt from Jeffrey's October 10 Trader's Classroom analysis of Travelers right here.

The bearish October 22 earnings report was over a week away -- and investors had ample time to prepare for this high-confidence setup, or to step aside.

Every investor and trader wants to be ready for market moves in advance. Join our Traders Classroom subscribers now and see if it helps you do that. You get 30 days risk-free to decide.

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