This American Airlines (AAL) Trade Could Double Your Money in 6 Weeks

Monday saw an even split between the indices with two moving higher and two moving lower. The Dow led the way with a gain of 0.76% and it was joined in positive territory by the S&P with a gain of 0.56%. The Russell lost 0.1% and the Nasdaq suffered the worst loss at 0.38%.

Eight of the 10 main sectors moved higher yesterday and four of them gained over one percent. The energy sector led the way with a gain of 1.73% and it was followed by the financial sector which notched a gain of 1.52%. The utilities sector (+1.41%) and the consumer staples sector (+1.29%) were the other two with gains over one percent.

[hana-code-insert name=’adsense-article’ /]The communication services sector was the worst performer with a loss of 0.35%.

The other sector that lost ground was the tech sector which registered a loss of 0.07%.

My scans registered another bearish day with 28 names on that side of the docket and only four on the bullish side.

The barometer dipped in to negative territory with a reading of -11.9.

That is the first negative reading in nine trading days and only the second one since September 27.

Today’s trade idea is another bearish one, making it three in a row on the bearish side.  American Airlines Group (Nasdaq: AAL) appeared on the bearish scan last night and the fundamental rankings are mixed with an EPS rating of only 22, but the SMR rating is above average with a B.

The chart shows that American has rallied up to its 50-day moving average since dropping down near the $30 level in late October. If you look at the pattern back in March and April, the stock rallied above the 50-day and then fell. It rallied back up to the moving average in early April and then fell sharply. I am looking for that pattern to repeat.

Buy to open the December $37-strike puts on AAL at $2.80 or better. These options expire on December 21. These options will double if the stock drops down to the $31.40 level. That is well above the recent low. I suggest a target gain of 100% and would recommend shutting the trade down if the stock closes above the 50-day.

— Rick Pendergraft

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Rick Pendergraft, Trades Of The Day

Rick Pendergraft has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick's analysis process includes fundamental, sentiment and technical analysis.