A bullish ascending triangle pattern has formed in the chart of American Airlines (AAL - Get Rating). If the resistance level is broken, a breakout could follow.

Headquartered in Fort Worth, Texas, AAL is the world’s largest airline. The company primarily operates in two segments: Mainline and Regional affiliates. AAL also has a large cargo unit, through which it offers a broad range of freight and mail services across the globe.

As you would imagine, the company struggled during the COVID-19 pandemic. The drop in passengers flying led to a huge loss of revenue for the company. In its most recent earnings report, sales were down year over year. As more people get vaccinated and start traveling again, the company is expected to get back on track.

AAL has $14 billion in cash, up from the previous quarter and more than enough to cover short-term obligations, but the company’s profit margin is a negative 61.5%. While sales are down 70.6% over the past year, they are expected to bounce back with forecasted growth of 338.7% year over year this quarter.

The stock appears undervalued with a trailing P/E of 2.81 and a forward P/E of 7.39, even with a year to date return of 54.1%, as shown in the chart below.

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Take a look at the 1-year chart of AAL below with the added notations:

  Chart of AAL provided by TradingView

While climbing a clear trendline of support (green), AAL has also formed an important level of resistance at $26 (red), creating an ascending triangle pattern. The stock just hit the resistance a few days ago and has now started to pull back again.

At some point, either the $26 resistance mark or the trendline support will break. A long trade could be entered on a break above $26 with a protective stop placed under the point of entry.

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Christian Tharp, CMT

@cmtstockcoach

AAP shares were trading at $193.80 per share on Monday morning, up $1.04 (+0.54%). Year-to-date, AAP has gained 23.21%, versus a 13.37% rise in the benchmark S&P 500 index during the same period.

AAL shares were trading at $24.34 per share on Monday morning, up $0.04 (+0.16%). Year-to-date, AAL has gained 54.34%, versus a 13.09% rise in the benchmark S&P 500 index during the same period.

About the Author: Christian Tharp

I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing. More...

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