AIG Trading Notes: The Pre-Market Story

On Friday, AIG traded up a whopping 20.46% on volume of 101,064,355 shares. On the surface this seems like a resounding vote of confidence for a company that is 80% owned by U.S. taxpayers. However, beneath the surface lies a murky story waiting to be told.

The story waiting to come out is that on Thurday August 6, 2009, AIG had a closing price of $22.53. During "pre-market" trading Friday August 7th, AIG went from $22.53 to $27.37, a gain of 21.48%. The volume of shares traded during the "pre-market" was 5,785,607 (after hour thumbnail.)

Once the regular hours of trading began on Friday August 7, 2009, the price of AIG actually fell from the $27.37 pre-market level to finally close at $27.14. Again, the regular hours of trading volume was 101,064,355.

What does all this mean? Over 5 million shares moved the price from $22.53 to $27.37. Once the regular market opened the public battled it out to come to the conclusion that the $27.37 wasn't the right price. Over 100 million only impacted the price by $0.23 lower than what 5 million was able to do by increasing the price over 20%.

My conclusion is that the public has less confidence in the future prospects for this company, and possibly the stock market, than the pre-market participants would have us believe. I also noticed that in after-hours trading the price rose an additional $0.08 on volume of 244,363 shares. Ain't it funny? 244,363 shares can raise the stock $0.08 while 100 million results in a loss of $0.23. The pre-market and after-market traders are gaming the system.

It appears that if you want to be a "trader" then you need to be entering and exiting the market before or after regular market hours. Otherwise, I would be cautious about dealing in this stock and any other stocks that are so easily managed based on so few participants.

Conversely, if you're a "long term" investor then be ready to sell on a moments notice using market orders only. If you use a stop order to sell at the price of $27 then it is likely that you could get stopped out at $24 instead of $26.99 or thereabout if the stock trades down in the pre-market on Monday (wouldn't be surprised if this happens.)

Source:

• Nasdaq quotes (Link to AIG quote on NASDAQ system)

Related Articles:

• AIG tells us a story, the drama isn't over

• Gaming the Pre/After Markets

Disclosure: No positions

Comments

[John Pulliam:]

Good analysis. This is a very strange situation. There could be price manipulation ahead of a massive stock offering to repay some of the massive debt load.

Either way, AIG is still attempting a fire sale that lower their earnings base that still will not come close to making it solvent. The likely outcome is the government doing a debt for equity swap that would leave current shareholders with a very tiny slice of the current company.

Also, life insurance premiums and deposits were down 49% while property and casualty operating profits fell 41%.

One of the few analysts that still covers AIG at Standard & Poor's gave AIG a $20 price target but S&P proprietary quantitative model gave it a $6.60 price target.

Given the likelihood of massive dilution and deteriorating fundamentals, AIG stock should trade like a call option as indicated by the $6.60 target from the S&P model

Aug 09 08:15 AM

[john s. gordon:]

we see evidence of front-running by certain parties. in the wall street casino some animals are more equal than others.
> jack

Aug 09 09:55 AM

[FloridaBoy2:]

Thanks for the article. I bought PUTS last week. I could be crazy but....

Aug 09 10:47 AM

[homeschooled:]

A More important influencing factor looks to me like AIG suffered huge amounts from the reverse split that was 20>1. The stock was shedding 20% routinely going down and now we are recovering most of that

Aug 09 02:16 PM

[tommiegun:]

Following AIG since early March when it was $.36, I have noticed that the it had a normal price of around $1.30 pre split. That would make current price to be around $38.00 a share. After the split shorts sold the stockprice down $8.60.
Having rebounded back I look for the price to return to the $38.00 level, especially since recent reports indicate once again that this company has failed to die. Althought, since the rebound I have sold 1/2 of my position and I feel alot better since doing that.

Aug 09 08:50 PM

[SoonYK:]

Thx for the good anaylsis. I had holding AIG when it crashed in Q1 and then when it recovered to above $1 as well as when it consolidated 20 to 1. I feel a lot better and understand better with your anaylsis now. From the AIG performance in Q1 & Q2, I have my reservation to hold this. At current level, get out is a better option.

Cheer/ des, a small-investor

Aug 10 12:37 AM

[SoonYK:]

Its a very good analysis and info. I had been with AIG this year in up and down position, including its recent 20 split & price consolidation from around $8 to 10plus and now $27-28.
From its asset to the performance & result, I dont see why it is so bull but good for many small investor, including me. My feeling is good but get out is better to take my profit.
Cheer // SoonYK

Aug 10 12:45 AM

[holmesnmanny:]

"The story waiting to come out is that on Thurday August 6, 2009, AIG had a closing price of $22.53. During "pre-market" trading Friday August 7th, AIG went from $22.53 to $27.37, a gain of 21.48%. The volume of shares traded during the "pre-market" was 5,785,607"

You do realize that they reported earnings, right? I mean, come on. Stocks that beat earnings estimates tend to rise a bit, even if they then fall thereafter.

"Once the regular hours of trading began on Friday August 7, 2009, the price of AIG actually fell from the $27.37 pre-market level to finally close at $27.14. Again, the regular hours of trading volume was 101,064,355."

You find this "newsworthy". You're talking about a measley 8 cents. You do realize that the stock is still up 20%, right? I think talking about a measley 8 cents difference from regular trading opening and close is a bit laughable to say the least. I think worrying about the volume occuring therein is a bit laughable as well, considering the context.

Apparently what had happened is that given the fact that the company still had some value around the time it sunk to 1 dollar a share, that kept it's stock price pre-split at 1 dollar. However, after said split the shorts came in and sunk the stock even though there was no real reason for the stock to continue downward. It's not like this company is worth nothing even with the eventual stock dilution due to the governments equity. However, just before earnings the shorters were forced to buy to cover due to the fact that the earnings could actually be above estimates. That is what has happened. The stock is poised to "atleast" trade around it's pre-split price, imo. This company, given the governments position to not allow it to fail, is gonna recover. It's just a matter of when, but it should be clear that it's far from being worthless, even at the present time.

Aug 10 02:33 AM