Today I will conclude the assignment from Scott who wanted a second opinion on EnCana Corp. (ECA-T), which was published on Oct. 5 and American Airlines Group Inc. (AAL-Q). Scott was acting on comments that both of these stocks 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 airline 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, airline 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.
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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.
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The six-month chart provides a close up of the resistance along the 50-day moving average in May as AAL traded near $50 and then pulled back to the $3 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. The best way to manage this stock is to maintain surveillance and watch for trading signals or a trend reversal.
Make it a profitable day and happy capitalism!
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