American International Group, Inc. provides insurance products and services for the commercial, institutional, and individual customers in the United States and internationally. The company operates in two segments: AIG Property Casualty, and AIG Life and Retirement. The AIG Property Casualty segment offers casualty insurance products that cover general liability, commercial automobile liability, workers’ compensation, excess casualty, and crisis management insurance; industrial energy-related and commercial property insurance products, which cover exposures to man-made and natural disasters; aerospace, environmental, political risk, trade credit, surety and marine insurance products for small and medium sized enterprises; and various forms of professional liability insurance products. The AIG Life and Retirement segment offers a suite of products and services to individuals and groups, including term life insurance, universal life insurance, accident and health insurance, fixed and variable deferred annuities, fixed payout annuities, mutual funds, and financial planning.
AIG could be forming a head and shoulders (H&S) pattern. Please take a look at the 1-year chart of AIG (American International Group, Inc.) below with my added notations:
First, AIG created a nice trendline of support (blue) over the last 9 months that broke in early November. As the stock has tried to rally, that previous trendline of support became a strong resistance. The break of the trendline means a break in the previous trend, but it doesn’t necessarily mean a lower move for the stock.
However, AIG has now created a key level of support at $47 (green). That $47 level is also the possible “neckline” for AIG’s potential H&S pattern. Above the neckline you will notice the H&S pattern itself (red).
Remember, patterns such as an H&S need to confirm to have the meaning that they imply. Confirmation of the H&S would occur if the stock were to break below its $47 support. If AIG does break that level, the stock should move lower from there.
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The Tale of the Tape: After breaking trend, AIG could be forming a head & shoulders pattern. Although a trader could go long at $47 expecting a bounce, the stock’s pattern would seem to imply an eventual breakdown. If that happens, a short trade should be entered on a break of that $47 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!
Christian Tharp, CMT
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