American International Group Inc (NYSE:AIG) shares are under pressure and in need of another bailout. If buyers don’t swoop in quickly further pain for AIG is in the offing.
The rapid rebound in stock prices this month has been a sight to behold. The dreams of short-sellers hoping for another shoe to drop have been dashed, and any with the misfortune of chasing shorts into the hole earlier this month are now experiencing untold pain. In searching for a few silver linings (at least for bears) amid the recovery, I came across American International Group stock.
While the rest of the market is flirting with new highs again, AIG is wallowing in the mud. Not only has it not rebounded, it just re-tested the crash lows on heavy volume. Something is amiss, and until the technicals turn, AIG deserves a top spot on your bear list.
Three years ago, American International Group stock lost its mojo and has been floundering ever since. In fact, at $58.71 it’s sitting at the same price it was in April 2015. Meanwhile, as you know, the S&P 500 has been ascending to the clouds. The persistent relative weakness has given bulls little reason to even consider the stock.
With the latest downturn, AIG now finds itself below every major moving average. The 200-day and 50-day are both flatter than a pancake, reflecting the stock’s inability to trend. And the 20-day is descending, dragged down by this month’s price swoon.
The precipice alluded to in the title is $58. As shown in the weekly chart, American International Group stock has now tested this zone five times over the past year. To their credit, bulls have successfully defended it each and every time, but I suspect their resolve is waning.
And that could tee-up a potentially profitable bear trade.
Play the American International Group Stock Breakdown
The beauty of a stock testing a critical price level is it sets up a very easy “if-then” type of trade. If AIG falls below $58, then buy the June $60 puts for around $3.70. The risk will be limited to your initial investment. To minimize the damage, you could exit if AIG stock is able to climb back above $61 after the breakdown.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.