AAL Day Trade Swing Trade (Brad Reed Jan12,2015)AAL expected to open at 50.65 for a Retest Gap. Could be a bearish break away gap for a swing trade. To learn to trade this strategy for free, go to www.RealLifeTrading.com
AAL
FLY THE FRIENDLY SKIES?The price of oil has been sliding in the second half of 2014, but airlines have not lowered their prices. Or brought back free meals. Or allowed domestic customers to check in luggage free of charge. So how can one turn flying friendly? Perhaps by purchasing U.S. airline stocks.
The cost of oil has plunged nearly 48% since the end of June and the market remains stuck in one direction. OPEC nations might make less profit and Russia, Iran and Iraq might be faced with significant economic and social issues. However, individual customers should be in the winning column.
Customers have not fully benefited from oil’s collapse. While gas is cheaper at the pump, food, clothes and airline tickets haven’t declined appreciably. Since these companies will not pass on even some of their profits to customers, then customers will need to extract benefits on their own.
U.S. airline stocks such as American Airlines (AAL) and Delta (DAL) have been surging since October 10, as they became easy choices for investors and short-term speculators. These stocks have been moving in the opposite direction than oil (CL1!) and they will remain in demand for as long as oil will be cratering.
The four-week correlation between oil and American Airlines is near perfect high negative levels. It rarely drops below -.8, and then the correlation doesn’t last more than a few weeks. Things have changed — the high negative correlation has been in place for 1 ½ months.
Only a bounce of the four-week correlation above -.8 would suggest profit taking on American Airlines and Delta.
American Airlines Group - Head & Shoulders BounceAAL is looking like it is on track to drop to between $28 and $25 per share middle to end of October (before the earnings report). As the head and shoulders pattern has been completed (passing an averaged neck line : $36-34) and then continued downward, I believe it is a strong position to assume the bottom will be reached soon.
Even if the price falls below $25 (lowest target buy) for the rest of the year I do not foresee a loss in the long 'buy and hold' till end of next summer (2015). Given the strength of the US dollar and overproduction of oil putting downward pressure on fuel price, I would expect the price of AAL to whiplash back up after health scares have passed.
Also, keep in mind the merger of American Air and US Air is in its early stages, a handful of kinks had needed to be worked out before corporate efficiency improved a great deal. It has been mentioned that the merger of all corporate financials, customer information, flight databases, etc, would not be close to complete until 2015.
My hope is that the price will double again (as seen in 2014 peak) and perhaps push even higher.
Bullish On Airlines? Kiplingers had an article on airline stocks that opened with "There's an old wall street joke about how to end up with $1 million worth of airline stocks...Start with $10 million."
"In 2000, nine airlines controlled about 80% of the U.S. markets. Today, just four companies control about the same percentages."
Looking at the major players American Airlines presented the best opportunity for a cheap buy on the pullback. Looking at the technicals, what we have here is a potential Gartley and Bat pattern completion which also lines up with a 61.8 Fibonacci retracement from this stocks all time lows.
Long-term I'm still cautious about ever being too bullish on airline stocks because of the numerous factors that can affect them but as a trader, if you're looking to get long this looks to be a prime area.
Akil
