Here’s your trade on American Airlines (AAL). (May 20, 2015)
This is what we’re looking at today, could you guess? American Airlines ( NASDAQ:AAL ). Now, I think it was their CEO, typically if anybody’s going to put their foot in their mouth representing a company it would be the CEO. He comes on CNBC and says, well it’s not like the guy was lying or anything, they’re cutting prices to compete with low cost carriers.
I look at this and the airlines are just broken. Just look at this, prior to today you could say, “Oh, well there’s a triple top.” Well, you could say that and of course if you were a liar you would say, “Well I absolutely saw today’s action coming,” but you didn’t. You just knew that we had hit one, two, really three different times. And if you’re trading and shorting on this kind of a trade I think that’s really pretty presumptuous. Because if you’re shorting the stock, say right here, you’re assuming that the stock’s going to break down here as opposed to move higher.
You won’t know until this stock breaks above 55.00, that’s well above where you bought it. You won’t know whether you’re wrong or you had just kind of really a bad entry on a short because you got it near the bottom of the box versus the top, so you really don’t know. But when you see this kind of move, a key breakdown, I would say, now maybe it’s just me, but I would say 51.4 million shares traded in a day, that’s a lot of money being whipped around by people.
This was all selling, this was not Billy Bob and Jethro’s Fish Tackle and Trading Company selling their position in American Airlines ( NASDAQ:AAL ). This is like Fidelity and some insurance companies and pension funds hitting the eject button saying, “Oh crap! I think that’s Denzel Washington piloting the plane up in the front. And what’s that vodka I smell on his breath?” This is really, really bad stuff here.
Here’s the thing, it’s bad if you’re long, but it’s not so bad if you’re short. What I’m telling you is, one of two things are going to happen tomorrow and neither one of them is this; it’s just not going to happen, that’s not the way stocks trade. Not when institutions are dumping them. Remember the “Three Day Rule” that I talk about. The smart guys sell on the first day, the semi-smart guys sell on the second day, and the not so smart guys sell on the third day.
Now you can say, “Well these were the smart guys here.” Okay, fine. We can say that, but what I’m really saying is, the smart guys start a move. The semi-smart guys see the move before the not so smart guys do. So by the time the lowest common denominator sees a move and takes action it’s actually time to be going in the opposite direction.
What I’m telling you is, I don’t think this was the start of a move; there are plenty of airlines ( NYSE:DAL ) that were still up, doing just fine. Hawaiian ( NASDAQ:HA ), still moving up doing really nicely. JetBlue ( NASDAQ:JBLU ) also doing really well here. So that wasn’t the start of the move yesterday. I would say today is the start of the move.
So what I want you to do is look for one of two things, either a gap and then a continuing to fall at which time I’d say I’ll give you the clearance to go ahead and short the stock. If the stock gaps down and then starts to trade up a bit, watch for it to peak right around 45.00, that’s the 200-day moving average, between 45.00 and 46.00, and if it does that it’s giving you a gift. You’ve got to respect a gift from the gods of Wall Street. If they throw one in you’re lap you’ take it.
This is what I mean, if the stock starts to snap back because the CEO comes on and says, “You know what? I just had a bad pizza, well actually I was riding up in first class and I had one of their Cacciatore Chicken dinners and it just set with me really, really bad. We’re really not cutting prices, we’re actually hoping that the low cost carriers are going to raise their prices to compete with us because we’re doing so well.”
If he says that then you’re going to get killed in your short. But if he doesn’t say that two things will happen. Number one, pigs playing flaming violins will not be flying out of my ears. And number two, you will have a good short entry, and you’ll have a great opportunity to sell this stock before it falls further. I’m telling you, this transportation breakdown is a really big deal. In a couple days, here’s the 50-day moving average, here’s the 200-day, in a couple days you’ll hear somebody come on CNBC, watch for it.
You’ll hear someone come on and talk about a death cross in the 50 and 200-day moving average, where the 50 crosses below the 200-day after a pretty substantial uptrend. I would say from here to here, going up 50 percent or so, that’s a pretty substantial uptrend. I’m really, really bearish on the market right now simply because this break today in the transports is a big break. So let it be your big break, look to short some of these airline stocks.
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