Time to Fly With American Airlines? Here's the Trade - TheStreet

Time to Fly With American Airlines? Here's the Trade

American Airlines is reversing hard off last week's low. Can it maintain altitude and keep flying higher? The charts are here to help.
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American Airlines  (AAL) - Get Report and its peers were catching a bid on Monday as investors bid up stocks in the airline space.

American was up more than 5% in midday trading, and Delta Air Lines  (DAL) - Get Report, Southwest Airlines  (LUV) - Get Report and even Boeing  (BA) - Get Report all were doing well on the day.

Investors are showing some love toward stocks in general on Monday - with the S&P 500 and Nasdaq each up more than 1% - but the airline space is clearly outperforming.

What’s the catalyst?

It helps that the TSA traffic numbers from Sept. 27 were the highest in about three weeks when traffic spiked over the Labor Day weekend. However, in order for increased traffic to remain a catalyst, it needs to be sustained rather than just a day or two of strength.

It also helps that American Airlines CEO Doug Parker said he’s confident that the federal government will extend the industry's $25 billion bailout.

Can the rally last?

Trading American Airlines

Daily chart of American Airlines stock.

Daily chart of American Airlines stock.

In May, shares broke down to new post-coronavirus lows before almost tripling to its June highs. Since then, the stock has settled into a somewhat wide but management trading range, between $11 and $14.

For several weeks, shares were chopping around the 20-day and 50-day moving averages while threatening to break out over $14. American Airlines stock couldn’t do it though, selling off hard last week.

In that selloff, the stock broke below those key moving averages and made a run toward $11, bottoming at $11.22.

With Friday’s strong finish - closing higher by 4.4% - and Monday's rally, investors are looking for more. From here, I want to see American Airlines stock hold above the 20-day and 50-day moving averages, two levels that were reclaimed on today’s gap higher.

Near this area now, let’s see if the stock can go weekly-up, rotating over and closing above last week’s high at $12.98. Above $13 puts $14.25 resistance back in play.

If American can clear this area, it puts the 200-day moving average on the table, along with the 38.2% retracement.

On the downside, look to see if the stock loses the 20-day and 50-day moving averages. If so, it keeps sub-$12 in play, followed by last week’s low and $11 range support.

Below the August low at $10.71 has the potential to put the May gap-fill in play near $10.