American Airlines Stock Rally Could be Short-Lived

Call traders have made big moves on the equity in recent weeks

Managing Editor
Dec 26, 2019 at 3:25 PM
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For American Airlines Group Inc (NASDAQ:AAL), 2019 has been a volatile downtrend. Although the equity is up 1.4% at $29.58 this afternoon, it's shed more than 8% over the past 12 months, and now looks to be running into a historically bearish ceiling of resistance at the 160-day moving average. Added pressure from this trendline could quickly burst today's move higher, and send AAL back on a downward spiral to bring in the New Year.

According to Schaeffer's Senior Quantitative Analyst Rocky White, AAL is trading within one standard deviation of its 160-day moving average, after spending most of its time below this trendline in recent years. Similar tests of this trendline resistance have occurred seven other times over the past three years, resulting in an average 21-day loss of 9.5%, with 86% of the returns negative. Another loss of this severity would send American Airlines stock back below $27 before the end of January.

Daily AAL with 160ma

Despite its unsteady technical performance, call traders have continued to surround the airliner. The equity's 50-day call/put volume ratio of 3.94 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 94th annual percentile, meaning calls have been purchased over puts at a faster-than-usual clip during the past 10 weeks. An unwinding of this bullish sentiment could send the security even lower.

Downgrades are also highly likely. Coming into today, eight of 15 brokerage firms sport a "buy" or better rating on the airline. Short interest has also jumped 13.9% during the past two reporting periods, and now accounts for a hefty 9.4% of the stock's total available float.

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