Lets first get one thing out of the way, when dealing with the financial sector today I hate to use fundamental analysis because they’re not reliable. Everyone’s books are poisoned… end of story. What I do want to look for is a solid wave count with volume and aligning technicals. When looking at AIG’s daily chart, dating back to December 2010, you can see the quick drop that brought it all the way from $62.38 to the lows at $19.18 on October 4, 2011. From the lows at $19.18, there are a clear 5 waves up, but everything since then looks very corrective, and is failing to give us a sense of direction. I decided to add Fibonacci retracements to see if it will give us a better understanding of the larger picture. The price action is failing at the 38.2 extension and the 23.6 extension is acting as support. This tells me that this is a simple consolidation period for AIG…. but to help me confirm that it’s a consolidation period and nothing else, I added Bollinger Bands. When Bollinger Bands become squeezed together it means that the price action isn’t having big swings, and indicates there’s a big move coming. We just can’t say for certain right now, which way that is.
Peter Nitso
pnitso@yahoo.com
