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What in the world happened to AIG today?

|Includes: American International Group Inc (AIG)

AIG traded fairly flat today until around 1 PM eastern time, when it took off like a missile. As far as I can tell, no real news was announced at that time. What happened?

I posted back on February 23 that AIG was starting to look better as a high-risk high-reward opportunity. According to Bloomberg, some of AIG’s business units were starting to regain profitability, and according to other sources, AIG was being successful in selling assets to pay off the government emergency loans.

Today’s activity was unusual in that there was a tremendous spike in the price, but it was not related to news. AIG announced yesterday that they were planning on selling more international assets–but what happened at 1 PM? There are a few possibilities, which are not mutually exclusive and may all have happened:

  • AIG’s price or chart hit some kind of magical technical indicator at a large quantitative hedge fund, which triggered a spree of automatic buying.
  • AIG started rallying, for whatever reason, and the rally was then amplified by massive short covering. According to the most recent numbers on Yahoo Finance, AIG has a 26% short interest, so a short squeeze is possible.
  • Some kind large capital-raising deal is in the works, and word about the deal got leaked.

As with my February 23rd article, I remain cautiously optimistic about AIG, but I must emphasize that this is still high-risk. Today’s price action was exciting for people who were already long, but it does not necessarily signal any new fundamental information. If you are willing to take the risk, AIG could have a good reward, but today alone should not be a reason to buy.

UPDATE: Maybe this was the reason. AIG is selling more assets in a new deal.

-Alex Cook

Disclosure: None