Friday, July 10, 2009

Listening to the Market for Signs

As intra day traders we use the price action the market provides as a way to gauge and judge how stocks are trading. Sometimes the divergence between an individual name and the market is so glaring that the stock tips its hand early on. We had such a scenario occur with AIG this morning.

If you look at the chart below you will see that AIG has been strong all day since opening slightly down this morning. Although the name has been in a major downtrend and weak recently, early on today the price action showed something different. While many of us on the desk came in today thinking that AIG will be a short opportunity, the action did not confirm this, and in fact the exact opposite happened. As the market sold off to its 869 lows, AIG was still trending upward and holding its 9.62 support level. As soon as the market caught a slight bid AIG proceeded to rally another dollar.

The divergence, extension on high volume, and trending nature of AIG made it an excellent candidate for a long today.

Black line = SPY
Green/Red = AIG

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