Thursday, December 01, 2016

AIG Draws Bull Flag In Mid-Elliott Wave 3

American International Group (NYSE: AIG) formed a strong bull flag pattern after tracing sub-wave (iv) in Elliot Wave (3).  The flag follows a 7.35 point surge in six trading sessions.

AIG Daily Chart
A selling climax marked the start of the last upward thrust and the subsequent six trading days that formed the flagpole saw a volume signature that confirms the move.  Since then, the stock has traded in a classic flag pattern on below-to-average volume.

The Elliott Wave count tells an interesting story, as well.  Both wave (1) and wave (3) are comprised of five distinct sub-waves.  Wave (2) was similarly comprised of a classic (a)-(b)-(c) corrective pattern.  Looking at the development of wave (3), we are now in sub-wave (iv), and (iv) completed an a-b-c sub-wave itself.  The next move could be a breakout of the flag pattern into sub-wave (v) to complete wave (3). 

The price target for the flag pattern is 69.51.  This is consistent with Elliott Wave projections of sub-wave (v) with our flag target hitting the 76.4% length of sub-wave (iii.)  Even more enticing is the fact that, once price breaks the top of the flagpole, there's no overhead resistance going back at least 18-months.

AIG reports earnings after the close on 9 February 2017, so there won't be any earnings concerns in our trade horizon.  Be aware, however, that the stock will trade ex-dividend on Tuesday, 6 December 2016.  The dividend is $0.32 and has a pay-date of 22 December.  Historically, dividends have not hurt the performance of the stock post-ex-dividend, however when planning your stops do be aware that 32 cents will be deducted from the stock's price at the open on Tuesday.

Also be aware that there are four news items coming in the next two weeks that may have market impact.  The first is this Sunday (4 December) when Italy votes on a major Constitutional Reform referendum.  Next up is the 8 December ECB (European Central Bank) meeting.  Then, on 14 December, the US FOMC meets and is widely expected to raise interest rates for the first time in 2016.  Amidst all of this financial news is a potential recount of the Presidential Election vote tally in three states.  While that is not likely to change the outcome of the election, it will likely dominate the news heading into the 13 December deadline for declaring each state's electors.  Be aware of the potential volatility any of these items can create.

Here's how we're trading this stock.
  • Based on the chart, we do not foresee a trade to the short side.  That can certainly change, however it's not currently a consideration.
  • If the stock closes above the flag, we will take a long position.  Our target will be 69.51 and our stop will be just below the flag pattern low.
  • If we're still in the stock on 5 December and the pattern still supports maintaining a long position, then we'll take the dividend at the close.
Happy Trading.

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