In the Cara Accumulation/Distribution Zone article of May 26, 2005, I selected Dow 30 component AIG to describe how I use Relative Strength Index (RSI) and a form of Moving Average analysis (MACD) to determine when stocks ought to be traded.

AIG has been in a Downtrend since 4Q00, which is a particularly long cycle or a Dow 30 ("blue chip") stock. News events however have brought to light dubious management practices, and subsequent regulator and prosecutor intervention and changes in management, that have caused the owners and managers of capital to revalue the shares of this global corporation.

So today's price of $61 for AIG is a far cry from the $104 long cycle high in 2000.

But since that cycle high, there has been a series of intermediate cycle highs and lows that I described in my article of a year ago. Let's review.

On May 26, 2005, I wrote:

Looking at AIG's price data, anybody can see that right at the start of 2001 (let's call it 1Q01 even though it was the first week of a thirteen week quarter year) there was a cycle peak in the $96-$104 range. Then in the 1Q03 there was a cycle bottom in the $48-$56 range. Then in the 1Q04, there was a subsequent cycle peak in the $68-$76 range.

Not only can you see that the trend and cycle concept important to me, you can see that I refer to price ranges, rather than trying to pick a precise top or bottom. That's because trading is not precise, and you should never think that it is.

So let's call the 1Q01 cycle top say $100, which is between $96 and $104. In the same way, but just to round the numbers so I can make an illustrative point, the 1Q03 cycle bottom was say $50, and the next cycle high was $75.

Therefore, over the past say five years, the amplitude of our idealized cycle for AIG would be defined by $100, $50, and $75, which just happens to be a 50 pct loss in the bearish trend (1Q01 through into 1Q03), followed by a 50 pct gain in the bullish trend (1Q03 through into 1Q04).

If an Extra-Year Trader, i.e., those who have a time horizon to complete a buy and a sell or a short sell followed by a buy, in not less than a year (a year is say 250 trading sessions), were studying AIG, they would try to make the Sell at $100, the Buy at $50 and the next Sell at $75.

You can follow the RSI and MACD on the chart I showed a year ago, and from that chart you will see that MACD was bearish, but the RSI for the Monthly had apparently bottomed below the 30 line for RSI, which was bullish.

On the surface, this condition would indicate to me that there would a shorter than usual intermediate up cycle that would possibly be followed by a lower low as the market was trying to find a long-cycle bottom to the AIG price.

So here are the current Monthly, Weekly and Daily data charts for AIG. Try to follow price through the advancing RSI and MACD lines.

Monthly data

Weekly Data

Daily Data

By studying and applying these technical concepts you will learn patience, and will see that this is as much art as science. But as I say the tools are effective, and when they are applied properly with analysis of fundamental, quantitative and macro-economic data and other forms of technical analysis (such as applying the same tools to sector/industry/group studies), your portfolio performance will improve.

Be patient. It takes a lifetime sometimes to acquire enough knowledge and information to succeed at anything. Due to the constant change in markets, you must be a lifetime student if you hope to excel.

Good fortune is not a matter of good luck. You can quote me on that.