Dramatic Price Move Examples

Now consider some specific examples of dramatic price movements that follow common Black-Down-Black and White-Up-White patterns. By September 15, 2008, American International Group (AIG) was already spinning wildly out of control. In December 2000, AIG peaked at more than 2000. By the beginning of 2002, AIG had fallen below 1500. For about the next 5 years, AIG traded in a range roughly between 1000 and 1500. AIG closed February 2008 below 1000 for the first time since February 2003. By mid-May, AIG had fallen below 800. AIG’s steady decline throughout the summer of 2008 is shown in Figure 5.1.

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Figure 5.1. Daily stock chart for AIG, May 8–October 7, 2008

The stock was in free fall. On Friday, September 12, AIG fell from about 300 to close at 234.52. On Monday, September 15, it opened with a gap down of more than 30% and closed down 60.8% from the September 15 close, forming a Black-Down-Black. On September 16, AIG opened at 37, down dramatically from the previous day’s close of 95.20. But, September 16 turned out to be a dramatic reversal with the stock closing at 75—more than a 100% increase in one day!