The airline industry finds itself at the epicenter of the pandemic maelstrom. With air travel grinding to a halt, shares of major carriers like Delta Airlines (NYSE:DAL) and Southwest (NYSE:LUV) have been decimated. American Airlines (NYSE:AAL) also counts itself among the victims, but AAL stock has been showing some subtle signs of improvement.
Today’s article will update you on the damage, and point out the key technical levels that matter.
One month ago, I didn’t have anything good to say about American Airlines’ stock chart, but price and volume patterns have since improved. News followers will point to the unprecedented amount of stimulus flowing into the economy and the direct government aid to airlines as the causes for the progress. Perhaps they’re right. Or maybe AAL stock was just so beaten down that the damage to the company’s bottom line was priced in.
Regardless, it’s not the why but the what that commands our attention today. Let’s look at the good and the bad about American Airlines.
The Good for AAL Stock
I see two technical developments that bulls should be celebrating. First is the shift in volume patterns. The last two advances saw a sharp uptick in participation. The cluster of accumulation days speaks to either heavy short-covering or fresh buying pressure. Either way, it’s a promising change in character.
The second item I feel is worth mentioning is the downtrend’s slowing momentum. Though American Airlines has been carving out lower pivot lows, the RSI indicator has created higher swing lows, forming what is known as a bullish momentum divergence. The signal helps confirm a slowdown in selling pressure.
As positive as both developments are, however, we have yet to see upside confirmation. And that brings us to the bad.
The Bad
The weekly and daily downtrends remain intact. For all their fury, the last two rallies have failed to break above overhead resistance. Monday morning’s downside reversal looks to be ending last week’s rebound. If sellers press their advantage, a return to the lows of $9.09 is likely.
Until the pattern of lower swing highs and lower swing lows is broken, caution is warranted. Slowing momentum doesn’t have to result in a trend reversal. American Airlines could instead morph into a trading range as we await more evidence on how the coronavirus will play out.
To prepare for either outcome, here are my preferred bull and bear trades to place now.
Bull: Buy AAL stock only if it breaks above Friday’s high ($13.40). I’d stop out on a break of today’s low ($11.25 so far). Use $17 as your profit target.
Bear: Short AAL stock now with a stop over Friday’s high ($13.40). Target $9 and below.
For a free trial to the best trading community on the planet and Tyler’s current home, click here! As of this writing, he did not hold a position in any of the aforementioned securities.
