The turbulence striking airline stocks just won’t let up.
Any attempt to pull out of the nose dive has failed in short order, especially over the past two months.
With this morning’s drubbing in American Airlines Group Inc (AAL), losses for the week have now extended to a harrowing 13% haircut.
All told, AAL stock has been cut in half over the past 18 months. And while troubled passengers may be citing its massively oversold status as reason for optimism, such a stat is about the weakest reason to bet on a rise.
Let’s head to the charts to discover any other clues or price levels worthy of our attention.
AAL Stock Chart
First up we have the grandaddy of all technical signals — the trend. And I know it strains the obvious, but the trend for AAL stock on any and all time frames is lower. Which is a polite way of saying the bulls have been castrated across the land.
With American Airlines well below all major moving averages, consider any and all rally attempts suspect.
And what of volume patterns? They too bear the bear’s mark. Distribution days have multiplied in recent days as shareholders have fled to safer quarters.
Lest you think today’s missive is leaning too bearish, I’ll throw out a pinch of optimism for the few remaining airline lovers to cling to. While AAL is carving out a lower pivot low in the price chart, the RSI indicator is forming a higher swing low, or, at least it will if American Airlines can pivot higher in the next few days.
That right there is a bullish divergence suggesting the downtrend is slowing in momentum.
Bottom Line for American Airlines
If you’re looking for a signal to start bottom fishing, I suggest waiting for a break of the $33.50 zone. The resistance breach will signal a reversal in the short-term trend, thus suggesting the bulls have finally established a foothold.
Until then, dispense with any bullish aspirations you may have for this stock.
As for the bears, I suggest caution with initiating new trades here. Chasing a stock already down 11% is bad form. The risk-reward is no longer favorable. Wait for some type of rebound, ideally to the declining 20-day moving average around $31 or $32, then grab put options.
The Aug $32 put option should do the trick. Your risk is limited to the initial debit while the reward is unlimited until the stock reaches zero.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
