Chart Wars: A Look At American Airlines, Southwest After The Airline Stocks Confirm Reversal

American Airlines Group, Inc AAL and Southwest Airlines Company LUV rallied Tuesday after completing a period of consolidation that took place between July 6 and Monday.

American Airlines said on Tuesday that it expects second-quarter sales to increase 12% from pre-pandemic levels when it reports its financial results on July 21, which boosted the airline sector.

The company also announced it received a CORSIA-certified batch of sustainable aviation fuel from Neste, which made aviation history. The batch of fuel, part of a pilot program, will help American Airlines work to reach its emissions obligations set out by the Carbon Offsetting and Reduction Scheme for International Aviation.

The news didn’t impress Susquehanna analyst Christopher Stathoulopoulos, who maintained a Neutral rating on the stock and lowered the price target from $19 to $15. On the contrary, Stathoulopoulos sees more upside for Southwest, and on Tuesday he upgraded the stock from Neutral to Positive and announced a $45 price target.

From a technical standpoint, both airlines look set to climb higher over the coming days, although consolidation will be needed along the way, because on Tuesday American Airlines and Southwest confirmed they are trading in new uptrends.

It should be noted that events affecting the general markets, negative or positive reactions to earnings prints and news headlines can quickly invalidate patterns and breakouts. As the saying goes, "the trend is your friend until it isn't," and any trader in a position should have a clear stop set in place and manage their risk versus reward.

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The American Airlines Chart: American Airlines reversed course into an uptrend on June 30, when the stock bounced up off the $12.25 level. American Airlines printed a higher low on Monday at $13.31 and on Tuesday, the stock confirmed its uptrend by rising up above the most recent high, which was formed at the $14.27 level on Friday.

• American Airlines was soaring up on Tuesday on massive volume, which indicates there is a high level of interest in the stock. At the time of writing, over 62 million shares of the company had exchanged hands compared to the 10-day average of 32.98 million.
• If American Airlines closes the trading day near its high-of-day price, the stock will print a bullish Marubozu candlestick, which could indicate higher prices will come again on Wednesday. If higher prices don’t come, the next most likely scenario is that American Airlines prints an inside bar pattern to consolidate Tuesday’s sharp increase.
• American Airlines has resistance above at $14.88 and $16.20 and support below at $11.22 and $10.

The Southwest Chart: Like American Airlines, Southwest reversed course into an uptrend on June 30 and on Tuesday, the stock confirmed that it’s trading in an uptrend by rising up above the July 7 high of $37.10. Southwest’s higher low within the pattern was formed at the $36.22 level on Monday.

• Southwest has a gap above on its chart between $39.26 and $39.93. Gaps on charts fill about 90% of the time, which makes it likely Southwest will rise up to fill the empty trading range in the future. If the stock fills the gap completely, it will have climbed about 3.5% from the current share price.
• If Southwest closes the trading day with a long upper wick, it may suggest consolidation is likely to take place on Wednesday and traders and investors can watch for the stock to print an inside bar. Like American Airlines, the inside bar will lean bullish because Southwest was trading higher before forming the pattern.
• Southwest has resistance above at $39.08 and $41.47 and support below at $36.55 and $34.36.

See Also: Fourth Of July Travel Is Picking Up: How Will Major US Airlines Handle Delays, Cancellations And Pilot Shortages? 

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