Big moves up and down in share prices need to be supported by increasing volume or the move will rarely be sustainable. One way to determine strong trends which can help you get on board for a long move upwards or downwards is to look at stocks that are trading a large amount of volume early on in the day. This will help us set the best moves apart from the rest. (For background reading, see Volume Rate Of Change.)
Here are five stocks that were trading on very large volume by noon today. Let's take a closer look at one that has seen a large share price change as well.
|American International Group
|Data as of 11:30 am EST September 16, 2008|
Although there is still hope that the government will bailout the failing company, shares of American International Group fell just under 40% on volume of almost half a billion shares this morning on fear that it exposure to mortgage backed securities being marked to market will cause it to go bankrupt. AIG is scrambling today to raise $75 billion in capital to help finalize a recapitalization and reorganization plan. After a CNBC report stated that a private sector rescue is "definitively dead", fear that it will require help from the government to raise this money has shaken the markets. If I were a shareholder of AIG, I would be petrified of a government bailout destroying the value of my holdings - a fate realized by the stock holders of recently bankrupt Bear Stearns, Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE). Shareholders were eviscerated when government assistance diluted them by 80%.
It is now being speculated that AIG has just one day left to find the capital it requires before facing bankruptcy tomorrow. Should AIG find assistance through the government, it will not necessarily be a boon to shareholders. The type of assistance currently being discussed will be a "bridge loan" in which AIG will slowly pay back the capital as it sells its assets. The question now becomes, how much are the assets really worth? I see the bridge loan only prolonging the fall of the world's largest insurer. With over 100,000 employees and more than $1 trillion in assets, AIG is arguably the world's largest financial institution, and the fall of this institution will rock the confidence in the financial markets and have repercussions seen throughout the world. Because of this, I wouldn't be surprised to see the government step in with a better bailout package than providing bridge financing.
Add Your Two Cents
What do you think will happen with these sizzling stocks going forward? Will increasing volume help their current trends continue? Will AIG continue to fall, as speculation and fear drive the sell orders to the trading floor? Be sure to join me (aytonmm) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.
For further reading, check out How Will The Subprime Mess Impact You? and Who Is To Blame For The Subprime Crisis?