American Equity Investment Life Holding (NYSE: AEL)

American Equity Investment Life Holding Company, through its subsidiaries, develops and sells fixed index and fixed rate annuity products in the United States. It issues fixed index annuities and fixed rate annuities, as well as single premium immediate annuities. The company also offers life insurance products comprising traditional ordinary and term, universal life, and other interest-sensitive life insurance products. It targets group of individuals aging 45-75 who are seeking to accumulate tax-deferred savings or create guaranteed lifetime income.

Take a look at the 1-year chart of American (NYSE: AEL) below with added notations:

1-year chart of American (NYSE: AEL)

Once it found its footing in February, AEL fell into sideways trading. While in that sideways move, the stock has formed a common pattern known as a rectangle. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern.

The AEL rectangle pattern has formed a resistance at $17 (red), and a $13 support (green). At some point the stock will have to break one of the two levels.

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The Tale of the Tape: AEL is trading within a rectangle pattern. The possible long positions on the stock would be either on a pullback to $13 or on a breakout above $17. The ideal short opportunity would be on a break below $13.

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

Follow me on Twitter: @cmtstockcoach