American International Group (AIG) is another name that’s forming a short-term trading pattern right now. AIG is currently in the process of forming an inverse head and shoulders pattern, a bullish setup that’s formed by two swing lows at the same level (called the shoulders, by themselves they’re a lot like a double bottom) that are separated by a deeper low called the head.
The inverse head and shoulders pattern indicates exhaustion among sellers – and judging from the rally that AIG has staged from its June lows, sellers must be pretty exhausted indeed right now. The buy signal comes when shares push through the neckline, a resistance level that’s at $35 for AIG. While the right shoulder still isn’t completely formed, a break of that $35 price is still a valid buy signal, right shoulder or not.
A couple of factors add some extra confidence to this pattern. The first is momentum, measured by 14-day RSI, which has been in an uptrend since well before AIG bottomed in June. Since momentum is a leading indicator of price, the fact that it’s still in an uptrend is a good sign. Another positive indicator is volume. Volume spiked hard when the head was formed, indicating that AIG can easily catch a bid below $33.
Still, I’d recommend sitting on the sidelines with this stock until the neckline at $35 gets broken. When it happens, keep a tight stop.