Trading in American Airlines Group Inc. (NYSE:AAL) is quiet on Tuesday. But the shares may be breaking out. A classic ';ascending triangle' pattern has formed on the chart. These patterns tend to be reliable and have bullish implications. This is why American Airlines is our Stock of the Day.
Some believe that technical analysis is like astrology or reading tea leaves. This is not surprising because many technical analysts don't understand the fundamentals that underlines the analysis.
Technical analysis is the study of supply and demand in a market. For example, an ';ascending triangle' pattern is a graphical illustration of a market with aggressive and anxious buyers and complacent and patient sellers.
These can be bullish dynamics.
You can see on the chart below that there has been resistance for American Airlines around the $13.80 level since August. Each time the stock hit that level, the sellers held their positions. They were patient.
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This is why the resistance line is horizontal.
Things were different for the buyers. As time passed, they became more aggressive. This means they would enter the market at higher prices.
Markets don't go in straight lines. They go in peaks and valleys. When a valley forms on a chart at a higher level than the previous one, traders say it is a ';higher low'. This shows the increasing aggressiveness of the buyers.
This is why the lower line on the pattern is ascending.
The horizontal resistance line shows that sellers have been patient. The ascending trendline shows that buyers have been aggressive.
These are bullish dynamics, and it could mean that the resistance around $13.80 is finally breaking. If this happens, it shows that the traders and investors who created the resistance with their sell orders have either finished or canceled their orders.
This means a large amount of supply has been taken off the market. New buyers may be forced to enter a bidding war to draw sellers back in. This could put American into a new uptrend.
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