American Airlines: time to fly away?

Markets have realised that this Winter will once again be marred by government travel restrictions and many of the travel stocks have been sold accordingly.

Let’s take a look at American Airlines, one of the largest airlines in the world.

As you’d expect, the share price has taken a hit since the heady highs of the summer.

1. Highs in the 26 area in March & May
2. New range between 22 & 18 handles from June until November
3. Right back down to a low of 16.11, retracing approximately 50% of the move from 8.24 2020 low

The early optimism was understandable. Countries were reopening borders and lifting travel restrictions. Second quarter earnings beat estimates, cash flow turned positive and hopes were high that the pandemic was finally heading for the history books. Then case numbers started to build and reality bit once more.

There are also ongoing second order pandemic effects. Boeing had to cut production which means some of the widebody planes American Airlines had ordered won’t arrive in time for the summer, so some international routes have already been cut.

It’s not all bad news however. New treatments are becoming available all the time, high case numbers aren’t necessarily turning into a complete overwhelm of hospital systems, and governments are more reluctant to impose restrictions on the public.

Pfizer and Merck antiviral pills are set to be approved by the FDA any day now and there’s even more potential good news on the vaccine front too.

Within weeks, scientists at the Walter Reed Army Institute of Research expect to announce that they have developed a vaccine that is effective against COVID-19 and all its variants, even Omicron, as well as from previous SARS-origin viruses that have killed millions of people worldwide.

Pent-up travel demand

Now, we’ve been here before. The pent-up travel demand narrative ended in disappointment in 2021, but that doesn’t mean history will repeat in 2022. It’s hard not to say those infamous words:

“This time it’s different”

But why wouldn’t it be?

People LOVE to travel and they’ve had two or three years of disruptions and restrictions preventing them from doing so. Why wouldn’t they jump at the opportunity as soon as governments give the green light and eventually declare the pandemic over?

And if that is the case, it’s logical to expect that travel stocks will see some action.

Zooming out to the weekly and tidying up the chart, American Airlines is a technician's dream.

Clearly defined ranges across the board. Every trader has their own style of course, and many involve looking at charts as acceptance and rejection of price zones alongside historical behaviour.

This market likes to stay range bound. We can see that right now, we’ve rejected the 18.82 to 22.37 zone, and also refused to drop below the 16.11 low. From a bullish perspective we could make the case for a push up targeting those 2021 highs on travel optimism with an invalidation area below the 13.86 zone.

Bears may say that it’s too early, and we don’t know enough about the variant and government response.

American Airlines is one to keep a keen eye on in the new year as traders look to scale into their thematic trades for 2022.

Not investment advice. Past performance does not guarantee or predict future performance.