American International Group Inc (AIG) — Shares closed 2015 up more than 10%, but it was a volatile year for the international insurance organization. In October, activist investor Carl Icahn took a stake in the company and urged management to split it into three separate entities to free up capital and avoid regulatory burdens.
While analysts at S&P Capital Equity Research say a breakup is not feasible, they note management does not have a clear alternative plan. They are also concerned by a mid-December management shakeup, which they say increased the risk of a successful turnaround strategy.
Capital IQ recently downgraded AIG stock to “hold” from “buy” with a $67 price target, which is about 85% of stated book value. Its analysts estimate revenue fell 4% to 6% in 2015 and earnings declined 21% to $4.15 per share.
Technically AIG stock is in a broad consolidation pattern that began with a quadruple-top in July/August at about $64. This level marks current resistance since shares topped there again in November and December.
Support is at the line connecting the August low with the recent low at about $60. Between support and resistance is a downside gap at $62 to $61, and in that gap is the 50-day moving average at $61.68.
On Monday, AIG stock briefly penetrated its 200-day moving average at $60.21 but then recovered, closing slightly above it. Shares appear “toppy” because of the overall pattern (a variation of a head-and-shoulders formation) accompanied by high-volume selling.
Sell AIG stock short on a close below its 200-day moving average or on an attempt to close the open gap at $62-$61. The minimum downside target is $56, but a decline could be extended with a sharp angle sell-off.
As with all short sales, protect against the potential for theoretically unlimited losses by entering a stop-loss order at $65. Ask your broker if there are any special restrictions on shorting AIG stock, and be aware that if you hold shares short through a dividend (stock or cash) you could face additional liabilities.
