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Tickers in this Article: AIG, CNA, NYSE:BRK-A, ALL, MXGL
American International Group. (NYSE:AIG) was the hottest stock in the markets a couple weeks ago, as it more than doubled in three days. The trading action in AIG had all the tell tale signs of a classic short squeeze. I won't rehash all the gory details of how AIG has fallen apart over the past year. The bottom line is a large portion of traders have been betting on the demise of AIG and it accelerated after the reverse split a few weeks ago. AIG dropped from the $30s to under $10 following the split, and after a quick bounce into the $14 level, it just sat there. It looks like the majority expected it to follow through to the downside, because once it started rallying, short covering fueled an explosive move higher.

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In looking at AIGs' peers in the property and casualty insurance sector, there are many stocks that have recently cleared large bases and have been squeezing some short of their own. CNA Financial Corporation (NYSE:CNA) for instance, had peaked twice at the $17.50 level over the past year, but recently surged past this level. This surge follows a several month consolidation in a tight range. This consolidation was healthy and could fuel a trending move higher, although CNA is overbought at these levels. The $17.50 should be a level to watch in the case that CNA pulls back for a retest of the breakout area. The rising 20- and 50-day moving averages are also possible areas of support moving forward.

Source: StockCharts.com


While Berkshire Hathaway Inc. (NYSE:BRK-A) has far-reaching investments, its subsidiaries primarily engage in the insurance and reinsurance of property and casualty risks. BRK-A was cut in half over the past year and a half, and it's possible that investors are seeing this as an overreaction. BRK-A has been on a tear lately, rallying approximately 27% from its July low to a recent high. More importantly, this move takes it above a longer term base that could turn out to be a bottom. While BRK-A could see some profit taking, overall the action has been bullish.

Source: StockCharts.com

Allstate Corp. (NYSE:ALL) is another property and casualty company that has been behaving well. ALL recently cleared a declining trendline that framed a large consolidation. It has started to rally after clearing its 200-day moving average, and just set a marginal new high at $29.20. It's rising 50-day moving average looks like a decent place for support moving forward.

Source: StockCharts.com

Max Capital Group Ltd. (Nasdaq:MXGL) is another property and casualty company that has successfully cleared a long-term base. MXGL has been building a base for several months after spiking to new lows in November. It has comfortably established support in the $16 - $19 range, and just recently cleared this level. It has managed to hold above this level for a few weeks, and is in the process of testing the breakout area as support. If this test is successful, it could confirm the base as an important bottom.

Source: StockCharts.com
Bottom Line
While the rally in AIG may be short lived, several members of its sector have been making promising moves for several weeks to months, and could be forming important bottoms. It will be important for them to hold above the bases they recently cleared, but if they are successful, higher prices could be on the horizon.

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At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.

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