It's not only women who reserve the right to change their minds, but also chartists. I'm staying with that theme this morning and looking at another reversal of fortune.
Back in late March, American International Group (AIG) looked poised to break down, but that was March. Bulls fought hard to hold the $54, and fight they did. Now we've seen support build at both $54 and $56, making AIG look attractive here on this breakout.
It's a little early to call this one a cup and handle. The depth is a bit too much on the cup; however, the resistance in the $58 to $58.50 area is poised to fall today. Granted, the upside looks to be only about $62 with a possible extension to $64, but there is still room for a move higher.
Price today is breaking higher out of a small three-day flag and has confirmation from every indicator on the chart. The Bollinger bands are expanding here as well, which I do like to see on an upside push. While the full stochastic looks to be heading into overbought territory, note this hasn't been a problem in the past. The key to watch for is the bearish crossover of the full stochastics while in overbought territory. We aren't anywhere close to triggering that setup at the moment and likely would not see it unless AIG pushes into the $60s quickly, then stalls, or if we consolidate here for at least another three days. Because of this, a trader could not only use a price stop of $55.90, but also a time stop. If, after the next three to four days, AIG does very little and the stochastics see both the %K and %D push over $80, then one could simply step aside or cut back their position.
AIG has plenty of activity in the options market, so simply using an in-the-money call, such as a $56 or $57 call expiring a few months out, would build in the needed price stop. Furthermore, if a trader is going to consider punching out after a few days if the stock does not move while the full stochastics rise, the time decay on the premium for an in-the-money call expiring several months out will be extremely small. The other consideration here would be a short-term bullish put spread, but with the market as choppy as it has been, I would be afraid any selloff could push volatility higher and shake folks out too easily. I'd stick with a simple call or stock position on this one and give it a chance for a few days.