Airline Stock to Avoid in April

American Airlines set to report earnings on Thursday, April 20

Managing Editor
Apr 8, 2022 at 12:13 PM
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At the height of the coronavirus pandemic during spring of 2020, American Airlines (NASDAQ:AAL) dipped into single digits for the first time ever. The smart money was a bet on the post-pandemic world, whenever that was, creating a feverish demand for travel. The following year delivered; U.S. passenger airlines carried 670.4 million passengers in 2021, up 83% from 2020 per the Transportation Department. But someone forgot to tell America Airlines stock.

AAL's performance on the charts didn’t quite follow the recovery script as closely as the airline industry did. After taking a 45% haircut in 2020, the stock bounced back with a 13.9% gain in 2021. Year-to-date though, and with Covid-19 cases near record lows, the shares are struggling with their breakeven level, as the Russia-Ukraine conflict sends energy prices through the roof. Since crossing above $26 in June 2021, AAL has carved out a channel of lower lows that culminated in a March 8 annual bottom of $12.44. Imagine telling an investor in March 2020 that two years from now, American Airlines stock would still be near its pandemic lows.

A resolution to geopolitical tensions, oil prices cooling off, or even loosened mask mandates on planes are potential tailwinds going forward. However, there are technical hurdles for AAL in the next 30 days. The stock stands out as one of the 25 worst performers on the S&P 500 Index (SPX) in March, going back 10 years. Per a list curated by Schaeffer's Senior Quantitative Analyst Rocky White, AAL averages a -5.9% loss in April in the last decade, with only 25% of the returns positive. That's handily the worst return on the list below, a list that also happens to include sector peer United Air Lines (UAL).

Worst Stocks April COTW

Despite AAL's 11% gain in the last 30 days, the mini-breakout has taken the equity right up to a historically bearish trendline. The last eight times the stock came within one standard deviation of its 160-day moving average, AAL went on to post an average 21-day return of -10.4%, with only one of the returns positive.

COTW April 3 AAL

There are other bearish factors to consider. The security's 14-Day Relative Strength Index (RSI), per above, sits up at 83, firmly in 'oversold' territory. Short sellers, meanwhile, are piling on; short interest is up 25% in the most recent reporting period. With AAL down 23.5% in the last 12 months, these bearish bettors are under no pressure to cover.

Last Wednesday, Citigroup weighed in on the airline sector, noting that it expects strong demand for domestic airfare in the coming months. Yet that same brokerage rates AAL as 'neutral,' noting larger relative balance sheet debt load and higher relative EV/EBITDA valuation affecting profits. With American Airlines set to report earnings on Thursday, April 20, a potentially volatile post-earnings reaction is yet another reason to look elsewhere when searching for a post-pandemic winner. You may believe in the broader airline sector, but AAL’s mounting technical headwinds should give an investor pause.

Subscribers to Chart of the Week received this commentary on Sunday, April 3.


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