Stock Of The Day: Is American Airlines About To Takeoff?

American Airlines Group Inc‘s (NYSE:AAL) shares are on a steep downtrend: oversold and at support. The stock now shows a reversal pattern, which is why American Airlines is our Stock of the Day.

Some people think that technical analysis is like astrology or reading tea leaves. It seems like a mystical fantasy.

And for some technical analysts, it is. They don't understand market dynamics and price action. They look for patterns on charts without understanding what the pattern illustrates.

When market leadership shifts from bulls to bears or from bears to bulls, price action can appear on the chart as a reversal pattern.

Sometimes, leadership change is slow and occurs over an extended period. This type of action can appear on a chart as a ‘rounded top' or ‘rounded bottom'.

Sometimes, the leadership changes and a sharp reversal occurs over a few days. This type of action can look like a ‘V' or ‘inverted V' pattern.

If the change occurs after a stock has tested a support or resistance level two or three times, a double or triple bottom and top may appear.

The leadership change can also take place in a single day. If it is from bears to bulls, a bullish engulfing pattern may appear on the chart. As you can see, one formed yesterday. See below.

American Airlines Chart

In the morning, it looked like the recent downtrend would continue. The opening price was below the prior days close.

But by the end of the day, the buyers overpowered the sellers and pushed the price higher. The closing price was above the prior days' open. Yesterday's trading range engulfed Friday's range, and this is what the pattern shows.

If understood and applied correctly, technical analysis isn't astrology. It is a graphical illustration of market dynamics. Traders who understand this can identify trend changes. This results in profits.

Image: Shutterstock

This article Stock Of The Day: Is American Airlines About To Takeoff? originally appeared on Benzinga.com