PreMarket Prep Stock Of The Day: American Airlines

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

One of the most commonly asked questions on our show over the last few weeks has been, "What will take this market lower?" On every occasion, the hosts of the show have the same answer: the second wave of COVID-19. Unfortunately over the weekend, data revealed this may indeed be the case.

The reason this is such a common question is that investors that missed out on the torrid rally since mid-March are looking for bargains, especially in the airline sector. With that being said, the retreat in American Airlines AAL was discussed for a potential long entry, making it the PreMarket Prep Stock Of The Day.

Long-Term Trend, Not Your Friend: When analyzing the issues to add to your long-term portfolio, the most important thing to note is the long-term trend. There is no doubt the trend in Americal Airlines since January 2018 is down.

After peaking at $59.08 in the first month of that year, it was nearly cut in half when it ended the year at $32.11. It did not fare much better in 2019, falling another 11% to $28.68. Keep in mind that the S&P 500 index was in a roaring bull market over that same time period.

Recent Price Action: Even though the S&P 500 index appreciated in the early part of the year, the issue continued to go in the opposite direction, ending January at $26.84. When the market began to crater in mid-February and into March, the issue more than participated.

While the index declined 35%, American Airlines declined 73%. However, during the recent rally off that March low, it has outperformed by adding 176% compared to the index’s rebound of 48%.

Don’t Chase: During our June 5 broadcast, our listening audience was warned not to chase the issue as it rallied over $20 on heavy volume. It should be noted the issue peaked on that day at $22.80 and has been on the retreat ever since.

Instead, they were encouraged to wait for a pullback to attempt a long entry. On Monday’s show, co-host Dennis Dick discussed a possible attempt at the long-side:

The Outcome, So Far: After a lower open, the issue declined another 19 cents, bottomed at $15.08 and has rallied back into the $16 handle, but not yet reaching Friday’s close ($16.74) as $16.24 stands as the high for the session as of 11:15 a.m. EST.

For those investors, that did not listen to the clip, Dick earmarked last week’s low ($14.07) as a possible exit point if the trade does not materialize to the upside.