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AIG: Don't Try to Catch the Falling Knife

Tuesday, February 12, 2008 | 04:15 PM

in Derivatives | Quantitative | Technical Analysis | Valuation

Here's an excerpt of a report we put out on Monday:

AIG shares broke down through what had been solid support over the last three years on the second heaviest weekly volume on record going back to 1996. The breaking of support happened to coincide with news that outside auditors had found deficiencies in the way the company values some financial derivatives it has written based on collateralized debt obligations (CDOs).

Additionally with a FusionIQ Technical Rank of only 12 (out of a possible 100) forward returns for AIG do not look promising. The next downside target for AIG shares is $ 32.00 (green line) and this aligns nicely with the objective point and figure derived target of $ 33.00.

Analyst sentiment remains overly bullish with 14 BUYS and only 4 HOLDS, particularly given the recent breakdown in price. We would expect to see the analyst recommendation skew migrate from its more bullish posture over the next several weeks/months bringing additional downward pressure to shares.

From a tactical trading strategy rallies into strength can be sold into to either exit long positions or put on new shorts positions.

American International Group (AIG) -
Weekly Chart through Monday's close