With the US economy slowly reopening and the Fed sticking by its loose monetary policy, the optimism surrounding the Airline industry and U.S. carriers are set to rise on hopes of a travel rebound.

One company, American Airlines (AAL) caught our attention as momentum is starting to pile up pushing the stock price back towards pre-pandemic levels.

 

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Although revenues are still way behind, according to American Airlines ticket orders are particularly increasing, and with U.S. carriers getting a $15 billion lifeline from President Biden’s Covid-19 relief bill passed by Congress on March 10th, in addition to the Payroll Support Program that is now extended to September, markets are looking forward to a fast historic recovery.

 

Bullish Scenario

AAL has recently moved above the 2-year downtrend, signaling a shift in investor sentiment, and with the stock price now steadily recovering, it is only a matter of time before institutions and big investors start betting on airlines again. The relative strength line, which compares a stock’s price action to that of the S&P 500 began to shoot up in November 2020 following the start of vaccinations.

 

We believe this could be the beginning of a major reversal, with the 200-period moving average (blue line) around $32 per share as a first possible target.

 

Bearish Scenario

If AAL reports a deeper than expected Q1 2021 loss and gives weak Q2 guidance, triggering a selloff below the major weekly trendline (red line), this could trigger a further break into the October 2020 bottom around $10.85.

 


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