Conventional market wisdom suggests that history doesn’t repeat itself, but it often rhymes. For American Airlines (AAL) , we are observing technical conditions that are very reminiscent of previous tops over the last five years. Today, we’ll see how a post-earnings gap lower has fueled further deterioration for AAL, and how investors could anticipate a tradeable low as the downtrend progresses. Before a painful downside gap last month, American Airlines was in a confirmed uptrend after a major low in August 2024. The first real warning sign on the chart was a bearish momentum divergence at the January 2025 peak, where the RSI was sloping downward as price made a new high. We can observe a similar bearish momentum pattern in December 2023 through January 2024, as AAL pushed above the $15 level on weaker momentum readings. After this most recent bearish divergence, American gapped lower after a disappointing earnings report, which led to a subsequent break of the 50-day moving average. Similar to what we observed in Q1 2023, a drop below the 50-day moving average after a bearish momentum divergence seems to suggest that a new period of distribution is in place. AAL is now trading within the range of the price gap from December 2024, and is also testing the 38.2% Fibonacci retracement level based on the August 2024 to January 2025 rally phase. If American completes a breakdown below the $15 threshold, that would mean a confirmed break below Fibonacci support, as well as a failure to hold gap support. Based on the weakening momentum readings, specifically the RSI pushing below 40 this week, we would expect further price weakness for AAL. The weekly chart of American Airlines brings to light another historical comparison with a major top back in early 2021. AAL had almost tripled in value from its COVID low below $10 to a peak of around $26 in March 2021. The weekly RSI reached overbought levels into that peak, indicating an overextended price structure after a sustained rally. Soon after, the weekly PPO indicator generated a bearish crossover, suggesting that the uptrend phase was now transitioning into a new distribution phase. We can observe a very similar pattern to these indicators over the last three months. The January 2025 high around $19 lines up with the July 2023 peak, and the weekly RSI became overbought as the price approached that key resistance level. Over the last two weeks, we’ve now confirmed a bearish crossover from the weekly PPO indicator, suggesting a new distribution phase may just be beginning. Airlines like AAL experienced strong gains in the latter half of 2024, encouraging confidence that there could be much further upside for this group. But based on a historical comparison with previous major tops, the charts are suggesting American Airlines could be in the early stages of a new downtrend phase. -David Keller, CMT marketmisbehavior.com DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
