American Airlines Group Inc. (AAL) shares rallied on Friday and attempted to resume its recent bullish move higher following its second quarter results that was accompanied with the news that the company would defer delivery on over 20 Airbus planes due to falling demand. The world’s largest airline reported both better than expected profit and revenue. Friday’s 4.00% stock price advance to $36.36 occurred after the company reported earnings of $1.77 a share, a beat from the analysts’ consensus of $1.60. Revenue dropped ~4% to $10.36 billion, but did beat expectations of a $10.30 billion print. The company confirmed agreements with its AAdvantage credit card partners, Citi, Barclaycard US and MasterCard which are expected to add $200 million in pre-tax income in the second half of 2016, $550 million in 2017, and $800 million in 2018, with continued modest improvement in pre-tax income each year beyond, in each case as compared to results expected under the prior credit card arrangements.
Price action on the AAL daily chart shows that the recent bullish move found resistance from the $37 level. Price has now recaptured the 100-day SMA and could be poised to make a run towards the $38.00 zone. It is around that area that price could form a bearish ABCD. Point D is targeted with the 161.8% Fibonacci expansion level of the B to C leg. Additional resistance may come from the 200-day SMA, which currently trades around the $38.66 level.
If the current rally stalls, price may not find major support until the $34.50 region. Critical support will come from the $30.50 to $31.50 zone.
The Trade: Buy AAL at $35.95, with a stop loss at $35.45 and a take profit at $37.95. The Risk/Reward Ratio is 1:4