American Airlines (NASDAQ:AAL) stock peaked in 2006. It had two impressive stints in 2015 and early 2018, but it has been downhill since then. AAL stock lost as much as 85% of its value from high to low. Its latest disaster was the pandemic, which caused it to collapse from $25 per share. That zone remains tough resistance, so investors need to understand that any rallies will require continued enthusiasm and time to make a difference.
The current task for American Airlines is for it to climb out of its pandemic-induced rut and rebuild its business. Meanwhile, the stock should continue to ping-pong between $12 and $26 per share.
The bears are in charge, as we saw last week with AAL stock falling 19% in two days. Although the airline business has improved, the space as a whole is still far from having clear skies. This is especially true since outbreak headlines are still floating around. Even the metrics are signifying the same thing.
While sales have increased 70% from 2020, they are still 35% below 2019. Appropriately, American Airlines’ stock is also 70% above its March 2020 lows and 41% below late 2019 levels. The company is slowly but surely inching its way back, but there are still hurdles in the way.
Government mandates for employees and travelers have also thrown a wrench in the cog. However, these policies are loosening a bit, so they could approaching operation normalcy in the U.S.
How to Approach AAL Stock Today
Fans of American Airline stock deserve a round of applause. They have been completely loyal to it throughout and bought dips twice for 150% rallies. This current slide should be no different but they will need the whole market to cooperate.
I see a bunch of potential buyers today with its current prices. This should translate into support for AAL on the next dip. The plan would be to buy the base for impending upside potential.
However, for the immediate future, AAL stock is still in danger from the overall geopolitical risk. The Russia-Ukraine conflict hits airlines squarely in the pocket. They cannot catch a break, and this is another test they have to endure.
The industry is barely out of the “ICU,” and here it is, facing another ailment. In 2020, AAL rallied 140% from around $11 per share. The low last week came pretty close to that. Therefore, my assumption is if AAL stock falls into that, it should be a buying opportunity for investors. It might still take time to recover, so investors should account for longer time frames.
Regardless of conviction and patience, we shouldn’t take full position in one lot. It would be smarter to average into the full risk to hedge against potential downside. Leaving room to add in the balance later makes for a better overall entry price. This alleviates the need to be surgical in finding a bottom. The correction on March 4 unfortunately created a wall of resistance around $15.40. Therefore, on rallies, AAL stock will face sellers around that area.
Bottom Line on American Airlines
The indices need to also help out by stabilizing this week, which should be a challenge on unavoidable Federal-Reserve-related headlines. The reaction to that will come on Wednesday, so I expect trepidation heading into it. AAL could also use a favorable industry headline, but the Ukraine conflict is far from finished.
Meanwhile, it serves no purpose to examine the fundamental metrics because they are still suffering from the pandemic crisis. The loss of revenues is translating directly down into a $2 billion yearly loss. That is a lot of hemorrhaging for management to wade through. Luckily the company has managed to be cash positive from operations. Once it gets a better top line, it can then tackle the new debt it acquired.
On the date of publication, Nicolas Chahine 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 InvestorPlace.com Publishing Guidelines.
