There's some serious damage in the insurance sector as a result of Elliot Spitzer's lawsuit. About an hour ago CNBC aired a package which showed the market cap losses over the last two days. Four companies, Marsh & McLennan (MMC), American International Group (AIG), ACE (ACE), and Hartford Financial Services Group (HIG) have lost a combined total of $37 Billion yesterday and today. AIG alone has lost over $24 Billion, while MMC has lost over $9 Billion.
As CNBC pointed out in their piece this has to be terrible for investor confidence in the general stock market. This is another blow to an allegedly safe sector, just like what happened to Merck a couple of weeks ago. (Of course we all know there's no such thing as a safe stock, right??) As usual I had to check the charts to see if there were any clues about these stocks being 'suspect'. I wasn't expecting to see anything but AIG actually gave a sell signal about a month ago when it slipped under both the 200 and 50-day moving averages. MMC was just blind-sided, HIG slipped under its 200 DMA earlier this month, as did ACE. So an investor could have avoided 75% of these disasters just by using the 200-day moving averages. Surely those people who rail against using technical analysis have to see the value of incorporating some simple indicators. Don't they? :-)
Anyway, here are charts of AIG and MMC:
Another way to avoid these disasters is to buy some puts as insurance.
I would consider buying puts if I had some large long positions but I suppose many didnt.
Even better to think of who was actually buying these stocks over those two bloody days! Barron's actually found at least one value investor who was snapping up AIG...