How to Play American Airlines in Front of Earnings

It’s gone from worst-to-first with Wall Street in 2021. But is today’s American Airlines (NASDAQ:AAL) worth buying? Let’s look at what’s happening off and on the price chart of AAL stock, then offer a risk-adjusted determination aligned with those findings.

An American Airlines (AAL) airplane waiting on the tarmac. Represents airline stocks.
Source: GagliardiPhotography /

AAL stock. It was one of the worst kind of “stay away” stocks as the novel coronavirus hit U.S. shores and then into a full-blown Covid-19 pandemic. And for good reason of course. The deadly outbreak was particularly ruthless on American Airlines given stay-at-home orders, other mandates and plain ol’ common sense dictated avoiding air travel.

AAL Stock Had Company

Of course, AAL stock was far from alone. The entire airline industry appeared at risk. And for good reason, as airline travel was down more than 90% during last year’s darkest days. From Delta (NYSE:DAL) to United Continental (NASDAQ:UAL), Southwest Airlines (NYSE:LUV) and others, none were immune.

Covid’s wrath even looked grave enough for famed value investors like Warren Buffett to famously exit while warning “the world has changed” for airlines in early May 2020. But the Oracle of Omaha was wrong on AAL and Berkshire Hathaway’s (NYSE:BRK.B) other holdings.

As with the Spanish Flu pandemic, the world is recovering. That’s particularly true in industrialized countries. Although in the United States, remaining intentionally unvaccinated has become a thing. This is despite far-flung tactics such as monetary prizes being offered to get American’s immunized.

Are we out of the woods? In the U.S., the vaccinated most certainly are.

Sure, there’s increased risk of getting Covid thanks to our unneighborly anti-vaxxing neighbors defying this past year’s chorused message we’re all in this together. But the chance of hospitalization, let alone death, is infinitesimally small for the vaccinated and younger, still unvaccinated populations.

And mind you, this broader success comes in the face of a more lethal and easier-to-transmit U.K. variant.

Today, the only togetherness that matters to investors is the unified action of others willing to pile in unison on headline fears promoting a repeat event. And Monday’s opening bell, crash-like drama tied to growing Covid cases played right into – and right out of – those worries.

AAL Stock Weekly Price Chart

American Airlines (AAL) weekly double bottom pivot forming in front of earnings

Source: Charts by TradingView

Since Covid’s bottom in March 2020 AAL stock has gone from the group’s most dogged worst-in-breed to 2021’s best-performing airliner. And there have been reasons behind the stock’s turnaround.

At the worst of the crisis, a popular conversation was American’s debt crippling and even potentially bankrupting the company. And those risks did exist – if the pandemic raged on and continued to take its toll on AAL and the industry. But it didn’t.

For investors betting on an industry rebound in 2020, the more popular wager allocated monies into blue-chip airlines DAL and LUV. These companies owned the financials to survive a prolonged bearish business cycle if conditions didn’t pan out as expected.

Investors collective action led to relative strength out of the Covid-driven bear market for those outfits. DAL recaptured just over half of its Covid-related losses by year’s end. And LUV managed to retrace more than two-thirds of its decline. Compare this to AAL, which only reclaimed about one-third of its correction.

The Emerging Pattern

Today and amid a much healthier industry environment and quicker-than-expected push past Covid, AAL had obvious room to play catch-up and enjoy the role of technical leadership. Which it has. But the playing field hasn’t been leveled completely. And that could be good news for American Airline shareholders.

Technically, a bullish high-level double-bottom pattern in AAL stock appears to be developing. At the moment, a second pivot low centered on American Airline’s 50% Covid bear market level and 38% retracement from March’s year-to-date high and the corrective base’s starting point are in play.

A fully formed pivot confirmed next week offers investors a chance to purchase a decent-looking pattern entry with much greater upside potential than downside exposure. Well, maybe.

Bottom line and with earnings on tap Thursday morning, participating near current prices requires booking a technically unconfirmed seat today. And with that also comes immediate and larger gap risk which may or may not work out favorably.

If investors are committed to playing a dicier earnings event, in our observation a slightly out-of-the-money, short-term Weeklys ’30 July $22 call looks about right both off and on the price chart.

On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

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