Revisiting Our October 23 Four Stocks To Own Article – Part I

Just before the US Elections, we authored an article related to four stocks/sectors that we thought would do well immediately after the November 2, 2020 elections.  The article highlighted how sector rotation in almost any market trend can assist traders in finding solid trading triggers.  We picked four stocks from various sectors for this example:

AAL American Airlines Travel/Leisure
ACB Aurora Cannabis Cannabis
GE General Electric Industrial/Specialty Industry
SILJ Junior Silver Miners ETF Precious Metals Miners

When you review my article from October 23 and the November 6 follow up article related to these stock picks, you will quickly see that all of these stocks exhibited similar types of technical patterns.  They were all bottoming in an extended rounded bottom formation and had all started to near a Pennant/Flag Apex in price.  Additionally, many of them, with the exception of SILJ, had set up a very clear RSI technical divergence pattern over the course of setting up the extended bottom in price.

My research team and I selected these stocks because of key expectations related to the post-election mentality of investors related to various sectors.  First, the cannabis sector had a number of new US states approve cannabis legislation – providing for an expected increase in business activity for the entire cannabis sector.  Second, no matter who won the election, another round of stimulus was likely to be approved resulting in increased economic opportunity for companies like GE and AAL.  The Travel and Leisure sector still had its risks as a surge in COVID cases could greatly disrupt future travel expectations.  Junior Silver Miners was our “hedge trade”.  If none of these other stocks started to rally, then Silver Miners would likely move 15% to 20%+ higher over time.

We thought it would be a good time to check in with our picks to share the importance of using sector trends to your advantage.  Currently, there are dozens of sectors that are either in a solid bullish trend or are shifting into new bullish trends.  Being able to catch these setups early and having the confidence to act on these trends is very important. We highlighted some of these setups in our October 23 article, but they happen all the time in various market sectors.

What is important is being able to see the setups, identify the sectors that have the strongest capability for future trends, then determining if you should trade the Sector ETF or some individual stocks within that sector.  Generally, the Sector ETFs provide enough liquidity and opportunity that you don’t need to worry about the individual stocks.  Yet, sometimes, applying the same techniques to the strongest sector stocks can add a very valuable component to your trading.

Below, we have highlighted the accomplishments of each stock symbol over the past 60+ days.  For this example, we will estimate a $20k allocation for ALL TRADES ($5k each) and use a simple 33% target allocation for Target 1, Target 2, and the Trailing Remainder.  That means, we take 33% of the position off at Targets 1 and 2, then let the remaining 33% trail with a protective stop.

Symbol Entry Price Target 1 % Target 2 % Last Price %
AAL $12.60 39.81% NA 22.44%
ACB $4.68 124.35% NA 114.72%
GE $7.63 22.77% NA 48.56%
SILJ $14.68 NA NA 10.11%

Our $20k sample account would look something like this right now…

Symbol Entry Price Target 1 $ Target 2 $ Last Price $
AAL $12.60 $656.87 NA $6,408.61
ACB $4.68 $2,068.28 NA $10,802.59
GE $7.63 $375.71 NA $6,995.44
SILJ $14.68 NA NA $5,505.50
Total => $29,712.14

Overall, this represents a +48.5% net account profit in just over 60 days by focusing on sector trends and rotations.  In the future, if any of our higher Target levels are reached, we’ll pull another 33% of these trades and lock in these gains while we let the remaining position carry forward with a trailing stop.  The trailing stop should be based on the last completed target level reached.  For example, if Target 1 is reached, then the stop should be placed just below the Entry Price level.  If Target 2 is reached, then the stop should be placed just below the Target 1 level and it should begin to trail higher as new price highs are reached.

Usually, we will pick an exit price level based on some type of trend failure or reversal point.  In most cases, this happens when the longer-term (Weekly based) moving averages change direction and price activity displays a clear technical pattern showing the bullish trend has ended.  Most traders are capable of determining their own exit points using technical indicators and other tools as they wish.

When some sector is trending very strongly, we don’t want to attempt to second guess the peak level or end of the trend.  We just want to ride that trend for as much profit as we can – unless some other sector sets up a new opportunity where we can better deploy our assets for profits. We like to let the trend work itself to an eventual end and use our Target Levels to lock in gains along the way.

American Airlines Trade

The following Weekly chart of American Airlines (AAL) highlights the simple trade we suggested on October 23, 2020.  As you can see, the upward sloping lows in price aligned with the upward sloping RSI trend (in the lower pane).  AAL has reached our first target level (the MAGENTA line) and has recently settled near $15.13.  Our stop level should be just below our entry price level, near or below $12.60 at this time as we wait to see how the bullish trend continues.

In Part II of this article, we’ll go over the remaining three stock symbols we initially suggested on October 23, 2020 and highlight even more details related to sector trending.

Many years ago I was researching Japanese Candlesticks and the teaching of Seiki Shimizu (The Japanese chart of charts: Shimiz) settled well with my thinking.  In his writing, he suggests that more than 60% of the time traders are waiting for new setups/trades.  This is something that many traders need to fully understand in order to balance aggressive trading tendencies with their abilities to create profits and protect assets.

If this theory is correct, then trades only need to focus on the 30% to 40% of any 12-month span of time  (three to four months) where the bigger sector trends/trades setup and initiate.  Otherwise, these trends may continue, in some form, over the remainder of the time to generate profits (or not).  This type of thinking suggests that traders only need to focus on the best immediate setups in any market trends/sectors and ignore the “froth” in the markets on a day-to-day basis.  Doing so will allow most traders the freedom to create profits by taking skilled and effective entry triggers while being able to enjoy life, family, and other hobbies.

Trading does not need to be a full-time, 24/7 effort.  The global markets generate big sweeping sector trends sometimes 2 to 4 times a year as capital moves in and out of various trend cycles (short, intermediate, and long term).  All we have to do is find the best sectors to trade, then wait for the trigger/entry setup. Now, imagine what it would be like if you could accomplish something like this every week or month with technology? You can with my BAN Trader Pro strategy and Hotlist.

BAN Trader Pro can help you identify and trade the Best Asset Now.  The BAN Hotlist helps us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to profit from sector rotation with my strategy. You can sign up here for my 100% educational webinar for free.

For a look at all of today’s economic events, check out our economic calendar.

Have a great week!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

United Airlines Warns Of Rising Cancellations

United Airlines Holdings Inc. (UAL) reduced guidance on Thursday, noting a deceleration in bookings and increase in cancellations as a result of the surging COVID-19 pandemic. Major airline carriers had booked stronger-than expected traffic over the summer months, as the virus faded from the front pages in most parts of the world. Several CEOs upwardly revised dismal forecasts during that period, allowing complacency to overcome common sense.

Business Travel Will ‘Go Away’

Former Microsoft Corp. (MSFT) Bill Gates put a damper on Boeing Co. (BA) and the airline sector on Wednesday, declaring that 50% of business travel will ‘go away permanently’ because of technology like the virtual meeting software offered by Zoom Video Communications Inc. (ZM). He also predicted 30% of people will be working from home in the long-term, allowing corporations to become leaner and meaner, with fewer-owned properties and multiyear leases.

United Airlines now expects fourth quarter capacity to drop ‘at least’ 55% compared to same quarter in 2019. It also guided for a 67% reduction in revenue, below prior forecasts. The company will also burn cash at a faster rate, eating up approximately $15 million to $20 million, plus $10 million of average debt principal and severance payments per day. None of these forecasts bode well for Delta Air Lines Inc. (DAL) or American Airlines Group Inc. (AAL).

Wall Street And Technical Outlook

Wall Street consensus has deteriorated in recent months, now standing at a neutral ‘Hold’ rating based upon 5 ‘Buy’, 7 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $32 to a Street-high $54 while the stock is set to open Thursday’s U.S. session right at the median $41 target. Capacity news and vaccine updates should drive price action into 2021 with this mid-range placement, suggesting limited upside.

The stock posted an all-time high at 97.85 in 2018 and entered a narrow consolidation that broke to the downside in February 2020, also breaking multiple support levels going back to 2013. The 2016 low in the upper 30s is now getting tested while continued upside will run into a buzz saw of resistance in the 50s, where the 2017 low and 200-week moving averages are narrow-aligned. On the downside, bears will gain control of the tape if a selloff pieces rising 2020 lows near 30.

For a look at all of today’s economic events, check out our economic calendar.

Pfizer Vaccine Breakthrough Boosts Markets

Pfizer And BioNTech Report Great Results From Their Large-Scale Study Of COVID-19 Vaccine

S&P 500 futures have recently received a major boost after Pfizer and BioNTech COVID-19 vaccine was found to be more than 90% effective in the first analysis of the large study.

Vaccine news provided significant support to stocks, and S&P 500 futures are gaining more than 4% in premarket trading. Not surprisingly, shares of vaccine developers are gaining a lot of ground ahead of the market open – Pfizer shares are up by 12% while BioNTech stock is up by more than 23%.

Meanwhile, WTI oil managed to return back above the $40 level as vaccine news increased hopes for a successful rebound of oil demand. At the same time, precious metals like gold and silver are under pressure as traders dump safe haven assets amid optimism about the vaccine.

Stay-At-Home Stocks Suffer On Vaccine News

While the vaccine news are positive for most stocks, shares of some companies are under major pressure in premarket trading.

Zoom and Peloton, which were one of the major winners during the pandemic, are down by almost 13%, and even Amazon is under pressure in premarket trading. As a result of the pressure on stay-at-home stocks, the tech-heavy Nasdaq is set to open higher by a modest 0.5%.

It remains to be seen whether vaccine news will trigger a real rotation from tech stocks into more cyclical stocks, but stay-at-home stocks will certainly have a very challenging trading session today.

Airline And Cruise Line Stocks Jump In Premarket Trading

Today, investors look ready to bet on beaten stocks like airlines and cruise lines. For example, American Airlines Group is up by 25% while Delta Air Lines  is gaining 18% in premarket trading.

Investors are even more optimistic about cruise lines like Carnival Corp. or Norwegian Cruise Line Holdings as an effective vaccine against COVID-19 may make the difference between bankruptcy and profitable business for these companies.

Traders should expect plenty of volatility in these stocks in the upcoming trading sessions as the market will try to find new price levels which take vaccine news into account.

For a look at all of today’s economic events, check out our economic calendar.

Four Stocks To Consider Buying Before The US Elections

Our research team put together this list of stocks to help you understand how to attempt to target strategic gains between now and 30 to 60 days after the elections. If you have not been paying attention to what is happening in the markets right now, be sure to read to the end of this report.

If you have not already prepared for the election event, and the pending chaos that is likely to happen after the elections, you better start doing something to protect your portfolio right now. Leaving your portfolio exposed in the moderate to high risk sectors in your IRA or 401k could result in some wicked risks to your total capital if you are not cautious.

ARE YOU READY FOR A VOLATILTY SPIKE AND THE RISKS TO YOUR PORTFOLIO?

Personally, I’ve been getting calls from my family and friends over the past few weeks urgently asking me “what should I do with my retirement money?” and “how should I protect my assets before the elections?”. My family knows if they do nothing to protect their capital, the could be exposed to a -20% or -30% draw down if the market moves lower after the election. We don’t know of anyone that wants to ride out another -20% to -30% correction in the markets – right?

Well, if you are interested in taking a small portion of your capital and attempting to profit from these four simple stock picks we’ve identified, you may feel quite a bit better about how you managed your capital throughout the election event and over the next 30 to 60+ days.

First off, each of these symbols targets key benefits we believe will take place (or have a moderately high likelihood of taking place) after the elections. Secondarily, each of these symbols has setup a very clear technical pattern that suggests “the bottom is in”. Lastly, we’re only including FOUR symbols that we feel are properly hedged for risk – we’ll explain everything in more detail as we go through each symbol. Each of these chart will show very clear support levels in BLUE on each chart. Use your best judgment to identify proper stop levels for each of these setups. You must allow room for the trade to mature and initiate a rally attempt in order to secure the profit potential. It should be fairly easy to see the opportunities in each of these picks. Let’s get started.

American Airlines: AAL Weekly Chart

Airlines are going to benefit from the stimulus package that will be secured shortly after the elections. One way or another, the US government must support essential transportation services through any extended economic shutdown or further COVID economic collapse. There will be some rescue package for the airline sector, we believe, within 30 days after the elections.

The basing support level, shown by the lower BLUE line on this Weekly chart, highlights the upward price trend that we believe support another attempt at a price breakout (higher). We believe the news of a stimulus package that supports an Airline rescue plan will prompt a moderately strong upside price move that could target +35% to +65% levels from the current $12.72 price levels. Ultimately, key resistance exists near the $28.50 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Aurora Cannabis: ACB Weekly Chart

The cannabis sector may benefit from a change at the state and local government level. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher). We believe the potential for ACB to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +115% to +235% levels from the current $4.88 price levels. Ultimately, key resistance exists near the $32.76 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

General Electric: GE Weekly Chart

General Electric Company may benefit from any new infrastructure plans related to new policy/plans on the federal/state level. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher). We believe the potential for GE to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +25% to +55% levels from the current $7.39 price levels. Ultimately, key resistance exists near the $18.05 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Silver Miners Juniors: SILV Weekly Chart

Junior Silver Miners are the “Hedge Trade” component for this simple portfolio. We believe Silver and Silver Miners will initiate a new upside price rally very shortly after the US elections and we believe this trade is an efficient “hedge” to the risk associated with the other three symbols in this simple portfolio. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher).

Silver miners should perform well once the price of gold starts a new uptrend and starts to rally towards $2200 price level. Fibonacci extension measured moves allow you to forecast where gold should rally to next as shown in this Sept 23rd article. We believe the potential for SILJ to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +35% to +65% levels from the current $14.98 price levels. Ultimately, key resistance exists near the $32.95 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Concluding Thoughts:

We hope you find the value in these four simple picks we have presented and understand how you can help to protect your investment portfolio by allocating a small portion of your portfolio into these opportunities. There is no guarantee that these picks will rally as we expect. There is no guarantee that the COVID-19 infections won’t skyrocket again – potentially shutting down the global economy again. You have to use your skills and abilities to manage these trades ON YOUR OWN. We are just showing you four potential trade setups that we believe have a strong likelihood of initiating an upside price move near or after the US elections. We hope you strongly consider the message we are trying to convey to you – protect your assets and prepare for extended volatility.

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen

Chief Market Strategies

www.TheTechnicalTraders.com

 

US Stock Market: Investors Dumping Overpriced Tech Stocks, Rotating into Undervalued Cyclical Stocks

The major U.S. stock indexes plunged on Thursday as investors continued to shed high-flying tech shares due to mixed earnings reports and growing signs of a worsening coronavirus pandemic, which could drive the economy into a deep recession. The price action also suggests that investors continued to dump overpriced tech stocks, while rotating into undervalued cyclical stocks.

In the cash market on Thursday, the benchmark S&P 500 Index settled at 3235.66, down 40.36 or -1.34%. The blue chip Dow Jones Industrial Average finished at 26652.33, down 353.51 or -1.41% and the technology-based NASDAQ Composite closed at 10461.42, down 244.71 or -2.58%.

Stock Index Recap

The bellwether S&P 500 snapped a four-day winning streak with its biggest daily percentage drop in nearly four weeks. All three major U.S. stock averages lost ground. The S&P 500 Index, the Dow and the NASDAQ Composite were mostly dragged down by shared components Apple and Microsoft Corp. Heavyweight Amazon.com was also a major drag on the tech-driven NASDAQ.

The Russell 2000 and the S&P Smallcap 600, both small cap indexes, outperformed the broader market.

Earnings Update

Second-quarter reporting season is in full-stride, with 113 S&P 500 constituents having reported. Refinitiv data shows that 77% of those have beaten expectations that were extraordinarily low. Analysts now see aggregate second-quarter S&P earnings plummeting by 40.8%, year-on-year, per Refinitiv, Reuters reported.

Microsoft Corp shares fell after reporting its cloud computing business Azure reported its first-ever quarterly growth under 50%.

Tesla Inc reported a profit for the fourth straight quarter, setting the company up for inclusion in the S&P 500. But the stock slid as analysts questioned whether the electric automaker’s stock price matched its performance.

Twitter Inc advanced after reporting its highest-ever annual growth of daily users.

American Airlines Group Inc jumped after announcing it would rethink the number of flights to add in August and September. Also, it reported an adjusted loss per share of $7.82.

Southwest Airlines said Thursday it lost $915 million in the second quarter compared with $741 million in net income a year earlier and warned that travel demand will likely remain depressed until there’s a vaccine or treatment for the coronavirus.

Economic Data and Fiscal Stimulus Bill Update

The number of Americans who filed for unemployment benefits rose more than expected last week as the coronavirus pandemic inflicted more damage to the U.S. economy.

The Labor Department said Thursday initial jobless claims came in at 1.416 million for the week-ending July 18. Economists polled by Dow Jones expected 1.3 million.

It was the 18th straight week in which initial claims totaled more than 1 million, and it snapped a 15-week streak of declining initial claims.

The number excludes recipients of Pandemic Unemployment Assistance, set to expire on July 31.

Meanwhile, Congress kept working to pass new stimulus before that deadline continued, with Senate Republicans announcing they could present their version of the bill to Democrats as early as this week.

For a look at all of today’s economic events, check out our economic calendar.

European Markets slip Ahead of the ECB

China Q2 GDP showed a 11.5% rebound, more than reversing the -10% fall in output seen in Q1, suggesting a nice v-shaped recovery in economic activity. The annualised number recovered to 3.2% from -6.8%.

If you had any doubts about the accuracy of China’s GDP numbers before this morning’s announcement, these figures only serve to reinforce that scepticism, as they appear to completely diverge from most of the data that has come out of China since April. In terms of the trade data, both imports and exports have been weak, while retail sales have also struggled.

Retail sales have declined in every month, by -7.5%, -2.8% and -1.8% in June, and with the Chinese consumer now making up around half of China’s economic output, I would suggest these numbers in no way reflect the real picture regarding China’s economy at this moment.

After yesterday’s strong session, markets here in Europe have taken their cues from the weakness in Asia markets and opened lower, as some of the vaccine optimism of yesterday starts to taper off.

On the results front Ladbrokes and Coral owner GVC Holdings have fallen back after reporting a decline in group net gaming revenue of 11%, in the first half of the year, largely down to the suspension of sporting events. The biggest falls in like for like revenues were in the UK and Europe with sharp drops of 86% and 90% in Q2, largely down to the wholesale closure of stores, though with the re-opening of shops in June these numbers are now starting to pick up again.

On the plus side, helping offset that weakness online gaming revenue rose, rose 19% in H1, with a 22% rise in Q2, with a strong performance in Australia. Management said they expect first half earnings to be within the range of £340m-£350m, while CEO Keith Alexander is set to retire and will be replaced by Shay Segev.

Energy provider SSE has said that coronavirus impacts on operating profits are in line with expectations, with profit expected to be in the range of £150m and £250m, though this could well change. The company has said it still expects to pay an interim dividend of 24.4p in November, in line with its 5-year plan to 2022/23.

In terms of renewable output, this came in below plan, but was still higher than the same period a year ago.

Purplebricks shares are higher after announcing the sale of its Canadian business for C$60.5m to Desjardins Group

Aviva announced that it has completed the sale of a 76% stake in Friends Provident to RL360 for £259m.

Royal Bank of Scotland also announced that from 22nd July 2020 it would henceforth be known as NatWest Group, subject to approval as it strives to draw a line under the toxicity of the RBS brand. This toxicity has dogged the bank since the 2008 bailout, along with the various scandals, around rate fixing, PPI and the GRG business, that have swirled around the bank since then. Investors will certainly be hoping so given the current share price performance, and hope that the change in name isn’t akin to putting lipstick on a pig.

Consumer credit ratings company Experian latest Q1 numbers have shown a large fall in revenue growth across all of its regions with the exception of North America, and which helped mitigate a lot of the weakness elsewhere.

The euro is slightly softer ahead of this afternoon’s ECB rate decision, which is expected to see no change in policy. At its last meeting the European Central Bank hiked its pandemic emergency purchase program by another €600bn to €1.35trn, with the time horizon pushed into the middle of June 2021. The ECB still needs to formally respond to the challenge of the German court irrespective of its insistence it is covered under the jurisdiction of the European Court.

Even where Germany is concerned optics are important, particularly if the ECB wants to be seen as a responsible arbiter of the economy across all of Europe, and the PEPP still remains vulnerable to a legal challenge, due to its difference with the previous program. The bank could also indicate if it has any plans to start buying the bonds of so called “fallen angels”. These are the bonds of companies that were investment grade, but have fallen into “junk” status as a result of the pandemic.

This morning’s UK unemployment numbers don’t tell us anything we don’t already know. The ILO measure came in at 3.9% for the three months to May, however the numbers don’t include those workers currently on furlough, and while a good proportion of these could well come back, there is still a good percentage that won’t.

On the plus side the reduction in jobless claims from 7.8% to 7.3% suggests that some workers did return to the work force in June, as shops started to reopen, however the number was tiny when compared to the claim increases seen in April and May, which saw the May numbers revised up to 566.4k.

To get a better idea of where we are in the jobs market the ONS numbers do tell us that there are now around 650k fewer people on the payroll than before the March lockdown, and that number is likely to continue to rise as we head into the end of the year and the furlough runs off.

The pound is little moved on the back of the numbers, while gilt yields have edged slightly higher.

US markets look set to take their cues from the weakness seen here in European markets, with the main attention set to be on the latest June retail sales and weekly jobless claims numbers.

Retail sales are expected to rise 5% in June, some way below the 17.7% rebound seen in the May numbers which reversed a -14.7% fall in April. The strength expected in the June number seems optimistic when set aside the employment numbers, and the 13m people still not working since March. This suggests that this number could well be highly fluid and while a lot of US workers have managed to get their furlough payments, it doesn’t necessarily follow that they will spend it.

Weekly jobless claims are still expected to be above the 1m mark, with a slight reduction expected to 1.25m from 1.31m. Continuing claims are expected to fall further to 17.5m, however these could start to edge higher in the coming weeks as US states issue orders to reclose businesses in the wake of the recent surge in coronavirus cases.

Twitter shares lost ground lost night after the bell as it became apparent that the accounts of high profit individuals like Elon Musk, Warren Buffet and former US President Barack Obama were hacked by a bitcoin scammer. All verified accounts were shut down as a result as Twitter scrambled to get on top of the problem. It’s difficult not to overstate how embarrassing this is for Twitter given that the blue tick offers certainty that the user of the account is the person they claim to be. To have them hacked is hugely embarrassing, and undermines the integrity of the whole blue tick process.

American Airlines shares are also likely to be in focus after the company announced that 25,000 jobs could be at risk, when the furlough scheme runs its course. United Airlines has already said it could cut up to 36,000 people, up to 45% of its workforce.

Netflix Q2 earnings are also due after the bell with high expectations that the company can build on its blow out Q1 subscriber numbers of 15.8m. Q2 is expected to see 7m new subscribers added.

Bank of America is also expected to post its latest Q2 numbers with the main attention on how much extra provision for bad loans the bank will add to its Q1 numbers.

Dow Jones is expected to open 160 points lower at 26,710

S&P500 is expected to open 18 points lower at 3,208

For a look at all of today’s economic events, check out our economic calendar.

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

American Airlines Takes Leap Of Faith With Increased Capacity

American Airlines Group Inc. (AAL) reported a Q1 2020 loss of $2.65 per share in April, compounded by a 19.5% decline in year-over-year revenue, triggered by a worldwide air travel collapse due to the COVID-19 pandemic. The bearish results weren’t a surprise, given well-documented woes of the airline industry, but Wall Street analysts still understated the severity of the losses. The news set off an aggressive sell-the-news reaction, dumping the stock to an 8-year low on May 14.

American Airlines Ticket Sales Picking Up

The outlook improved in the second half of May, with demand exceeding supply through the end of the second quarter. The load factor also improved at a steady pace, lifting from 15% in April to 63% in June. That uptick gave American Airlines a boost and the incentive to sell flights up to capacity, starting on July 1. However, it’s a risky move, requiring the carrier to add substantial payroll at the same time an out-of-control epidemic is sweeping through Southern and Southwestern states, forcing the EU to ban flights from the United States.

 

Executives outlined the latest initiative on Thursday, advising that “face coverings are now mandatory for all customers and team members while at work. As team members report to work every day, we have temperature checkpoints in place, and we’re also asking customers to certify they are symptom-free before traveling. We have also started a new collaboration with Vanderbilt University Medical Center to create a Travel Health Advisory Panel, which will advise on health and cleaning matters.”

Wall Street And Technical Outlook

Wall Street has taken a cautious approach on the stock, which was underperforming its rivals for many quarters prior to the pandemic. 3 ‘Buy’, 3 ‘Hold’, and a stomach-churning 7 “Sell’ recommendations highlight this skepticism, even though American Airlines has now dropped nearly 60% below the 2020 high. Targets range from a low of $7.00 to a street high $27.00, with price currently sitting at the dead center on the median $12.88 target.

Dilution could mark the biggest negative for American Airlines investors in coming quarters, with secondary offerings and heavy borrowing undermining bounces and uptrends. More importantly, the stock is now trading less than 5 points above the deep March low, raising odds for a retest that could trigger a dreaded death spiral, driving the once-profitable carrier into bankruptcy or a hostile takeover.

American Airlines Plans to Secure $3.5 Billion in New Financing

American Airlines Group Inc, a publicly-traded airline holding company headquartered in Fort Worth, Texas, announced that it is planning to secure $3.5 billion in new financing to enhance the company’s liquidity position as the coronavirus and related travel restrictions have led to a collapse in air travel demand.

American Airlines Group, the largest in the U.S., proposed a private offering of $1.5 billion aggregate principal amount of secured senior notes due 2025. The notes will be guaranteed on a senior unsecured basis by American Airlines Group Inc.

The company also stated that it intends to enter into a new $500 million Term Loan B Facility due 2024 concurrently with the closing of the offering of the Notes, American Airlines Inc reported.

Debt Terms

According to Bloomberg’s June 19 report, the junk bonds were expected to carry a yield of 11%. However, the company said that the final terms and amounts of the notes and the Term Loan are subject to market and other conditions and may be different from expectations.

The Company intends to grant the underwriters of the offerings a 30-day option to purchase, in whole or in part, up to $112.5 million of additional shares of Common Stock in the Common Stock Offering and a 30-day option to purchase, in whole or in part, up to $112.5 million aggregate principal amount of additional Convertible Notes in the Convertible Notes Offering, in each case solely to cover over-allotments, if any, the company said.

The Company expects to use the net proceeds from the Common Stock Offering and the Convertible Notes Offering for general corporate purposes and to enhance the Company’s liquidity position. The closing of neither the Common Stock Offering nor the Convertible Notes Offering is conditioned upon the closing of the other offering, the airline added.

Goldman Sachs & Company LLC, Citigroup, BofA Securities and J.P. Morgan will act as the joint active book-runners and as representatives of the underwriters for the Common Stock Offering and the Convertible Notes Offering.

Stock Outlook

American Airlines Group closed nearly 3% lower at $16 on Friday. It has plunged about 45% so far this year, still outperforming every peer. Fourteen analysts forecast the average price in 12 months at $13.78 with a high of $27.00 and a low of $7.00.

The average price target represents a -13.88% decrease from the last price of $16.00, according to Tipranks.

It is good to sell at the current level as 150-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.