NEW YORK (TheStreet) -- An American International Group (AIG) downgrade today from Deutsche Bank has taken most of the froth out of Monday's powerful surge. The stock will likely pull back a bit before resuming its recent bull trend.
At mid-day Monday, AIG was up over 2.7%, a sharp spike in bullish interest, on the news a federal judge ruled the Federal Reserve acted illegally in ordering the 2008 bailout of the insurance company. The stock finished the volatile session with a 1.1% gain on its heaviest upside trade since the summer of 2013.
However, with Tuesday's downgrade-inspired weakness, Monday's high, which clearly pierced the upper band of its five-month bull channel, is looking rather overextended.
Since its late-January low, AIG has been in a solid bull trend. This stair-step pattern has carried shares over 30% higher in an orderly and steady path. Each time the stock has become extended, a healthy pullback/consolidation has followed.
Considering the degree of Monday's spike high, it's very likely this healthy action will continue. For AIG bulls, it has paid to be patient. In the very near term, a light-volume fade is likely before the bull trend is reinvigorated. As has been the case since the January bottom, the stock has layers of support in place. The initial layer of support is the May high of $60.70.
For AIG investors, it may prove wise to allow some time for the stock to digest the recent news. Lower entry opportunities are likely before the stock moves past yesterday's peak.