American Airlines Group, Inc (NASDAQ:AAL) was flying about 7% higher on Friday, in tandem with the S&P 500, which was surging about 2.4% higher.
The sharp rise confirmed American Airlines is now trading in an uptrend. An uptrend occurs when a stock consistently makes a series of higher highs and higher lows on the chart.
The higher highs indicate the bulls are in control, while the intermittent higher lows indicate consolidation periods.
Traders can use moving averages to help identify an uptrend, with rising lower time frame moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term uptrend.
Rising longer-term moving averages (such as the 200-day simple moving average) indicate a long-term uptrend.
A stock often signals when the higher high is in by printing a reversal candlestick such as a doji, bearish engulfing or hanging man candlestick. Likewise, the higher low could be signaled when a doji, morning star or hammer candlestick is printed. Moreover, the higher highs and higher lows often take place at resistance and support levels.
In an uptrend the "trend is your friend" until it’s not and in an uptrend there are ways for both bullish and bearish traders to participate in the stock:
- Bullish traders who are already holding a position in a stock can feel confident the uptrend will continue unless the stock makes a lower low. Traders looking to take a position in a stock trading in an uptrend can usually find the safest entry on the higher low.
- Bearish traders can enter the trade on the higher high and exit on the pullback. These traders can also enter when the uptrend breaks and the stock makes a lower low, indicating a reversal into a downtrend may be in the cards.
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The American Airlines Chart: American Airlines’ most recent higher low in its uptrend was printed on Thursday at $12.58 and on Friday, the stock confirmed an uptrend by forming a higher high above the June 22 high of $13.43. The move higher also caused American Airlines to regain support at the eight-day exponential moving average, which may give bullish traders more confidence going forward.
- If American Airlines closes the trading session near its high-of-day price, the stock will print a bullish Marubozu candlestick, which could indicate higher prices will come again on Monday.
- The second most likely scenario is that American Airlines will form an inside bar, which would lean bullish for Tuesday because the stock was trading higher before forming the pattern.
- If American Airlines closes the trading day with a long upper wick, it becomes more likely that lower prices will come next week. If that happens, bullish traders can watch for the stock to print a reversal candlestick above the most recent higher low, while bearish traders will want to see American Airlines drop below $12.50 to negate the uptrend.
- American Airlines has a gap above between $14.16 and $14.71. Gaps on charts fill about 90% of the time, which makes it likely the stock will rise up to fill the empty trading range in the future.
- American Airlines has resistance above at $14.88 and $16.20 and support below at $13.36 and $11.22.
