When Judging the Best Bottom, First Insure it is Real

• Posted by Greg Harmon
• on August 3rd, 2011

Everybody has a different view on what type of bottom they prefer. Some like them looser moving up and down a up. Some like them rounded. And then there are some that just like any bottom that proves to be firm, myself included. The one thing that may seem odd about all bottoms is that they must be confirmed before they can be called a bottom. I am talking about bottoms in stock charts of course. In the Insurance sector there are many charts to analyze that may be showing different types of bottoms. Let’s look at a few and determine if they truly are bottoms.

Aflac, $AFL

Aflac, $AFL, has been building a base for nearly two months after falling over 24% from the March high. Notice that this bottom is occurring at the previous support level from September. As the process moves along the Relative Strength Index (RSI) is trending higher and he Moving Average Convergence Divergence (MACD) indicator is holding over the zero line. For this process to ultimately be labeled a bottom it needs to break back over 47.50 and continue up to the 50% Fibonacci level at 49.12. Otherwise it is still just a bear flag that could fall lower to support at 39 and possibly a Measured Move (MM) lower at 31.

American International Group, $AIG

American International Group, $AIG, has found support at the previous support level of 27.65 that was important for much of 2010. This type of bottom, a support bottom will be confirmed if it can move back higher over the previous high at 30 and then to 31.22, the 61.8% Fibonacci level. Until that time 27.65 remains support and it can be bought with a stop just below there for the next attempt higher, or sold short on a break under 27.65. The RSI and MACD are giving no clues currently as to the direction of the next move. Maybe a bottom but not yet confirmed.

Old Republic International, $ORI

Old Republic International, $ORI, has had a horrible run lower since early July falling over 20%. Wednesday it printed a Hammer candle. This can be a hard reversal signal, if confirmed by a positive candle the next day. With the RSI rolling sideways in oversold territory and a MACD that is leveling this is a possibility. But it is not a reversal until it closes over 10.18 Thursday. From there it has resistance higher at 10.60 and then 11.10. It could just as easily continue lower to support at 9.60 and then 9.35, and the trend is down.

So there you have three potential bottoms ad it turns out that we cannot confirm that any of them are bottoms. Who knew it would be so hard to identify a bottom?

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