AIG has been good to me for a while. It holds a special place within my watchlist - most likely because it holds my personal record for highest gainer (over 100%).
Typically greeks are decent on AIG and you can usually nail a nice day trade without burning through lots of theta. However, recently the bid/ask spread has been a little wide. This is especially true when looking at 3/1 expirations. With this said, I still believe there is some potential with AIG in the next coming days and this is why I wanted to write up my analytical review of it.
The main reason why AIG has caught my eye is this top line we're seeing here on the chart. Look how many times it's been rejected. This is a lot of times, which means that we have a higher chance of the rejection again. On the other hand if it were to break and close above this line it would likely run quite a bit. But again, this line hasn't really been broken since November.
Recently, the market has been on a rip. Even with this insane recovery we don't see AIG breaking through. SPY is hitting a crucial point in its run-up. How much farther can it go? Likely, the uptrend will continue but I believe we will see a slight pullback or sideways trading for a few days. This could really help us achieve the rejection and end up with a nice reversal.
So, with that said...what do we do? Well, let's take a look at a couple other things:
The Current ADX or Average Directional Index, is weak. The ADX measures the strength of the trend. What I'm seeing is the trend is weak and it's pointed downward. This might mean there isn't enough momentum to break through that level.
The 30min, 1 hour and daily MFI is not set up. In-fact on all of these charts the MFI is in the "dead zone" and that's a big con for me. If MFI was lined up then I would feel confident that the reversal would be more likely to occur. However, the MFI isn't low though. It's floating around 50 on the 30min/1hr and closer to 70 on the daily. Which means there is a lot of room to sell off.
- We wait for the rejection and catch the momentum back down. This would mean we would want to see a daily close reject underneath that top line.
- We believe based off recent history, the weak ADX trend strength and potential SPY sideways trading that the rejection occurs so we buy before the confirmation of rejection.
- We use an Advanced Strategy such as a strangle. This would entail us buying both a put and a call and our hopes are that we would capture a big move in one direction or the other. The downside of this is if the price trades sideways we could very well be down on both the put and call. Another consideration is maybe the price does reject but it doesn't go down to the bottom level and the loss of the call doesn't make up for the put.
There is a lot to consider but IMO I believe AIG is going to reject.
What are your thoughts?