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GAPS


AIG Enters Reversal Zone

08/16/05 07:33:04 AM
by Arthur Hill

A bearish candlestick pattern forms just as AIG reaches a key retracement zone.

Security:   AIG
Position:   Hold

Figure 1 shows American International Group (AIG) advancing within a rising price channel (blue trendlines). With the move above 62, the advance retraced 50-62% of the prior decline. This is typical for a retracement and makes an ideal spot for a bearish reversal.

Figure 1: Here's AIG advancing within a rising price channel (blue trendlines). With the move above 62, the advance retraced 50-62% of the prior decline. The advance also features three gaps, which act as confirmation.
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
While the retracement zone provides a potential reversal alert, traders should turn to other short-term features for some sort of confirmation. The advance features three gaps. The first gap was a breakaway gap and the second gap was a continuation gap. The third gap is also a continuation gap as long as it holds (Figure 1). A move below 61 would fill the gap and make it a bearish exhaustion gap.

Figure 2: In addition, a shooting star formed (red oval). These are bearish candlestick reversal patterns.
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
In addition, a shooting star formed last week (red oval, Figure 2). These are bearish candlestick reversal patterns that require confirmation. Again, a move below 61 would confirm this pattern as bearish and argue for lower prices.

While 61 holds the key to the shooting star and gap, traders should also take consolidation support into account. The stock traded flat from July 12 to August 8. This establishes a support zone around 60-61. A move below 60 would break the support zone and this would argue for a move toward the next support zone in the mid-50s.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
Company: TDTrader.com
Address: Willem Geetsstraat 17
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Phone # for sales: 3215345465
Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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