AIG BOUNCE STEADIES THE DOW- BUYING LARGE-CAP VALUE -- DELTA LEADS AIRLINES HIGHER

OVERSOLD AIG LEADING DOW HIGHER... I mentioned last evening that the Dow was in oversold territory and that it's drop looked overdone. It's getting some help today from American International Group which has been one of the Dow's weakest stocks owing to the recent insurance plunge. An oversold insurance industry is one of the day's strongest groups and is helping to stabilize the blue chip indexes. Chart 1 shows AIG gapping higher this morning after forming a small "double bottom" near 54 (see box). Its RSI line is also turning up from deeply oversold territory under 30 (see circle). It's too soon to call this a bottom. But the short-term downside damage is being contained. AIG's 5% gain makes it today's Dow leader. And that's helping make the Dow the day's best index gainer (+1%).

Chart 1

STILL BUYING LARGE-CAP VALUE... I also wrote yesterday about small and midcap stocks holding up better than large caps. Within the large-cap group, there's a distinction that needs to be made. And that is the fact that large cap value stocks are doing much better than large-cap growth. Charts 2 and 3 compare the two groups. Chart 2 shows the S&P 500 Value iShares ETF. That largecap value fund is bouncing off its 200-day average. Chart 3 shows its large cap growth counterpart trading much closer to its summer low and well below both moving average lines. Since I'm a believer in following the leaders, the message seems clear. If you're thinking of committing some money to the market in hopes of a fourth quarter rebound, go with smaller stocks or large cap value. You can do the latter with the ETF shown in Chart 2 or the Russell 1000 Value iShares (IWD).

Chart 2

Chart 3

DELTA LEADS AIRLINES HIGHER... Airline stocks, which have been among the year's worst performers, are taking off today to the tune of a 5% gain. The Airline Index is trading at the highest level in a month and breaking through turbulence at its 50-day moving average. Its relative strength line is also turning higher. Delta is the clear airline leader. Chart 5 shows it gapping up to a two-month high on huge volume. It's also the biggest percent gainer in the S&P 500 (+25%). Here's another beaten down group that may be scraping bottom. That can only strengthen an already strong transportation sector. We can only wonder if the upturn in the fuel-sensitive airline group is hinting at some weakness in the energy group, which would benefit the entire blue chip market.

Chart 4

Chart 5