American Airlines Group Inc (NASDAQ:AAL) has come under some pressure recently, and the last couple of days in particular have been nasty ones. In just a week, its chart went from bullish to bearish.
Let’s take a closer look.
As you can see below, AAL stock had been on a roll since bottoming out in mid-October and has been attempting to break above resistance at $50 over the last several months. It has failed each time, and following the latest instance, the shares pulled back drastically.
The stock is now below its 50-day moving average (the blue line) for the first time in months, and the breakdown came on the back of a huge volume spike. It’s also worth noting that price support at $45.50 was broken as well.
Time to Grab AAL Stock?
Some may view the weakness as an opportunity to scoop up American Airlines shares at a discount, but from a technical perspective, we need to see them build a base for a week or two on declining volume before considering AAL stock a buy.
The thing is, American Airlines is not alone — the entire airline sector has felt some pressure lately. In fact, the U.S. Global Jets ETF’s (NYSEARCA:JETS) chart looks extremely familiar. After rallying since October and consolidating the last two months, JETS failed at breaking above resistance and is now trading below its 50-day moving average.
A slew of earnings reports have been released from the airline stocks over the last week, and the results certainly weren’t bad enough to issue sell signals. If anything, there could have been some profit taking on “buy the rumor, sell the news.”
Instead, there are two much bigger issues currently weighing on the sector. The first is President Donald Trump’s immigration ban, and the second is the potential increase in capacity in the U.S. While the Trump situation has garnered a lot of news and negative feedback, it’s a short-term issue and should not have a major effect on airline profits.
On the other hand, more capacity could lead to price wars and lower margins.
Bottom Line for Airline Stocks
In the end, my view on the airline stocks remains bullish over the long term, and once the sector is able to build a base I’ll be on the lookout to move some money into either individual stocks or the ETF — whichever provides the more attractive opportunity at the time.
I don’t believe there’s a reason to try and be the hero today. Instead, use the pullback to buy the stocks that are on sale in the coming weeks.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks and the ETF Bulletin. Earlier this year, Matt and Hilary Kramer teamed up on Breakout Stocks where Matt serves as the Co-Editor. Most recently, Matt and Hilary joined forces again. This time, they are helping individual investors make money trading ETFs. For more on their latest project, visit www.etfedgesummit.com.
