Financials really feel like they are hanging on by a thread here. If the market slips just a bit more, many financial stocks looked poised to break below some key short-term support levels.
In fact, a few look like they may already be there. Let's take American International Group (AIG) for instance on the daily chart.
Like much of the rest of the market, AIG pulled back recently, but the stock has simply not seen any bounce for five days now. The close yesterday put AIG squarely under the $54.50 support level. Today should have been a day for bulls to bounce back and prove this potential breakdown as false. So far, we have yet to see any bounce as AIG is now in the red again on the day. A close under the $54.50 will put serious price pressure on the shares.
It isn't just a price pattern here, though. Multiple longer-term momentum and trend indicators have gone bearish during the past few days. In fact, I struggled to find anything bullish about the short-term picture. The RSI, MACD, moving averages and vortex indicator are all bearish. That doesn't mean the stock won't turn higher, but if it does, it probably means the broader market also moves higher and I would expect the broader market to outperform against AIG.
This one looks like an attractive hedge, especially against a broader market long position. The downside target here points to $52.50 where it should find support. At those levels, we'll have more updated information, but until we see a turn, all these negatives conclude buying here is akin to catching a falling knife.
The good news for AIG bulls is the longer-term picture isn't quite as bearish. The weekly chart also helps bears as it provides a very clear stop if you are short this name: $57. A close over $57 and the bearish thesis is dead as a double top will be broken to the upside. In fact, I would call this one a triple top on the weekly.
There is simply no technical reason to be short. The bad news for bulls though is the picture isn't rosy on the weekly chart, either. We do have a firm triple top in place and now we have bearish divergences in the RSI and Money Flow Index (MFI). Right now, the RSI is threatening the 50 level. A break under 50 would push that indicator into the red here, as well. Support comes into play around $48 and is currently declining on a weekly basis. There is some support here around $54, but with resistance only $2.50 away on the upside and support $6 lower on the downside, the weekly chart puts this one in the adverse class of the risk-reward setup. There is no reason to risk 2x plus the downside versus the current upside.
I like AIG as a short against a long biased portfolio with a hard stop on a close over $57 on a weekly basis or two consecutive daily closes. This is still a tough market to outright short, but as far as underperformance against a broader class of stocks, AIG fits the bill.
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