American Airlines Group Inc. (NASDAQ: AAL) seems to be getting ready for a price bump in the short-term as per the latest charts.
American Airlines Group Inc., through its subsidiaries, operates as a network air carrier. The company provides scheduled air transportation services for passengers and cargo through its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington, D.C., as well as through partner gateways in London, Madrid, Seattle/Tacoma, Sydney, and Tokyo. As of December 31, 2020, it operated a mainline fleet of 855 aircraft.
Bullish Move – Chart Indications
#1 Falling Wedge Pattern Breakout: As you can see from the daily chart of AAL, the stock has been forming a falling wedge pattern for the past several weeks. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out of the falling wedge pattern (marked in pink color), indicating possible bullishness.
AAL – Daily Chart
#2 Price above MA: The stock is currently above its 200-day SMA, indicating that the bulls are currently in control.
#3 %K above %D: The %K line of the stochastic is currently above the %D line in the daily chart, indicating bullishness.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates possible bullishness.
#5 Bullish ADX and DI: The daily chart shows that the (+DI) line is currently above the (-DI) line, indicating bullishness.
#6 Cup and Handle Pattern: The weekly chart of AAL shows that the stock has broken out of a cup and handle pattern. This is marked in the chart in orange color. The cup and handle pattern is a consolidation and breakout pattern. Once a breakout from the pattern happens, the stock may move higher in the short term.
AAL – Weekly Chart
#7 Bullish Stochastic: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of AAL above the 50-day SMA, which translates to a price of around $20.30. This is marked as a green color dotted line.
TP: Our target prices are $26 and $35 in the next 3 to 6 months.
SL: To limit risk, place a stop loss below $17.00. Note that the stop loss is on a closing basis.
Our target potential upside is 28% to 72% in the next 3-6 months.
For a risk of $3.30, our first target reward is $5.70 and the second target reward is $14.70. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers 2x to 5x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern with high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Happy Trading!
— Tara
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