American Airlines Group Inc. trading in a sideways pattern

Oct 7th, 2015 – 1 Comment

Lower oil prices = higher price for AAL


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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Today I will conclude the assignment from Scott who wanted a second opinion on EnCana Corp.(ECA TSX) which was published on October 5, 2015 and American Airlines Group Inc. (AAL Nasdaq). Scott was acting on comments that both of these stock would enjoy an upside run.

This will be the first time that I examine the charts for AAL. The company is the world’s largest airlines with an average of 6,700 flights per day serving 339 destinations in 54 countries. The company was formed when American Airlines merged with US Airways in 2013.

When considering investments in the airlines sector one key factor that will move the stock is the price of aviation fuel. There is an inverse relationship between the two so as oil falls airlines stocks rise. What also has to be considered is the competitive environment in the United States. Since the 1978 Airline Deregulation Act there have been lots of changes to the sector in the U.S. most noticeably bankruptcy and consolidation. The AAL merger of 2013 came as a result of AAL’s bankruptcy protection driven by low ticket prices, low load factors, and high prices for aviation fuel.

One of the unexpected benefits of the merger for the combined company was the adoption of US  Airways’ policy of not hedging their fuel purchases. As oil prices fell starting in 2014 the company reaped the full extent of the decline.

 

An audit of the charts will help identify the trend, support, and resistance associated with this stock.

 

 

AAL

The three-year chart depicts a stock that has offered a number of profitable trading opportunities on extended legs up. The MACD and the RSI both generated buy signals in October of 2014,as oil prices started their decline, leading to a significant gain in less than ninety days. In 2015 the stock hit resistance near $55.00 and pulled back to its current trading range.

 

 

 

 

 

AAL2

The six-month chart provides a close up of the resistance along the 50-day moving average in May as AAL traded near $50.00 and then pulled back to the $38.00 range. A death cross formed in June which needs to be respected. At this time the momentum indicators are not pointing to buyers taking control of the market. What can be observed is that AAL is trying to build a base near $38.00.

The best way to manage this stock is to maintain surveillance and watch for trading signals or a trend reversal.

 

Next time I will undertake a study of Mosaic Capital Corp. (M TSXV)

 

Make it a profitable day and happy capitalism!

 

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