Thursday, August 6, 2009

Pattern Recognition

By now most people know that AIG had a "special" day on Wednesday. The more important question is whether this is something that short term traders could have noticed early on in the day and capitalized upon.
If you look at the chart below you will see that as the market was selling off in the morning, AIG was continually making fresh highs. In addition, the option bids on the calls were staying firm on slight pullbacks in the underlying (showing strength and conviction of the "long" buyers), and AIG's first 3 extensions in the morning were on high volume (where as the sideways consolidation was on smaller volume). All of these factors put the cards in our favor as short term traders.
Lastly, if you look at AIG's price action on Friday July 10th you will see many of the same characteristics. On that day AIG ended up rallying $4 on high volume and relative strength. It's important to use the information the market is providing us in order to make the most of our trading opportunities- exactly what AIG did yesterday.

Red- SPY
Green- AIG

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