The EU has finally lifted the ban on US travelers entering Europe just before the summer travel season. And after more than a year of lockdowns and restrictions, consumers are eager to get moving again and get out of the house.
With such a promising scenario, you would expect airlines and their respective stocks to be major beneficiaries. However, American Airlines Group (NASDAQ:), the world's largest airline in terms of fleet size, number of passengers carried and revenue per passenger mile, could be just missing out.
The airline has been forced to cancel about 1,000 flights due to staff shortages, affecting everything from maintenance to onboard service. This disruption comes at the worst possible time for the airline, ahead of a summer season expected to break records.
The result of all this negative news is very clearly reflected in the supply and demand comparison of the stock on the technical map.
The price completed a weekly Evening (Shooting) Star, a 3-candle bearish pattern, rare at the weekly level.
The reversal structure occurred at the very high of March 15, when supply doubled and confirmed a $26 resistance. A drop below the 100 weekly MA will complete a double top.
The MACD has already completed an H&S. The MACD's short MA attempted to climb back above the long MA after falling below it, but found resistance, demonstrating a reversal in a broad price range.
Taking a step back makes it even clearer that more falls lie ahead.
From the longer perspective, one can see that support turns into resistance. American Airlines is about to double, below the trendline that has been a support since 2013.
Finally, to understand where supply and demand are heading, it is helpful to zoom in on the daily chart
The price is still developing a bullish triangle, a bullish pattern showing rising demand amid stale supply, which started with the optimism of easing restrictions and a reopening of the economy, before the recent negative news reached the press.
Yet in this chart we can see how powerful technical data can be despite weak fundamentals. Apparently there is enough demand to support the price as it enjoyed its first two-day advance since its recent downward move as it neared the pattern floor.
Even Tuesday's down day reduced losses and bounced off the bottom of the triangle. In other words, there are still interested buyers, despite the preponderance of unfavorable news.
What makes one wonder, are there investors who know something we don't?
Trading Strategies
Conservative traders have to wait for the price to double the top before going short.
Moderate traders would wait for the same or a retest of the USD 26 levels before taking a short position.
Aggressive traders could now enter a contrarian long position, counting on the rising triangle. If nothing else, price's proximity to the bottom offers an exceptional risk-reward ratio. If prices are rising, aggressive traders would go short as the price approaches the $26 level, shifting the focus from the short- to the long-term dynamics, as described above.
Whatever your risk appetite, you need to trade and commit to a plan that covers all aspects of trading. Here's an example:
Trading Example – Aggressive Contrary Long Position
Entry: $22
Stop Loss: $21.75
Risk: $0.25
Target: $25
Reward: $3
Risk: Reward Ratio: 1:12
Author's note: Trading isn't a sprint, it's a marathon. Unless you're insider trading, you don't know what will happen. Ignore the results of individual trades and measure overall performance instead. To do that, you absolutely must act with a plan that takes into account your budget, temperament and timing. Feel free to use our examples as a learning tool, with no profit expectation. Otherwise – and on this we can in fact see the future – you will definitely lose.
