Let's say you want to allocate money to the insurance industry and there are only two companies from which to choose: American International Group (AIG) or Chubb (CB). Which one would you pick?
In the daily chart of AIG, above, we can see that prices did rally above the 200-day moving average line but now they are back below it. Prices were above the 50-day average but now below it. It has not happened yet, but the 50-day and 200-day are narrowing toward a possible death cross in the weeks ahead. The On-Balance-Volume (OBV) line has been declining the past 12 months, even when AIG rallied in March, April and May. Prices of AIG made new highs in April and June, but momentum made lower highs for a bearish divergence. Prices look like they will continue lower and retest the lows around $50. I don't look to recommend stocks that are likely to go down.
The daily chart of CB, above, tells a different story, with prices above the rising 50-day and 200-day moving averages. The OBV line is neutral. Momentum is slowing, but there's no bearish divergence in place. If you can do a pair trade, I would short AIG and go long CB, or just go long CB with a $115 sell stop.
