After a summer in which air travel failed to take off, challenges facing the airline industry look set to continue through the holidays. Passengers remain reluctant to fly as the number of global coronavirus cases continues to rise and popular destinations like New York and Washington DC require visitors from certain states to undergo 14 days of self-quarantine upon arrival.

Key Takeaways

  • Airline passengers remain reluctant to fly as the global number of coronavirus cases continues to rise.
  • American Airlines Group Inc. (AAL) shares broke below an established trendline this week, opening the door to further falls in subsequent trading sessions.
  • The U.S. Global Jets ETF (JETS) traded roughly within a four-point range between early July and October before breaking down when its price ran into the 200-day simple moving average (SMA).

Not even the traditionally busy Thanksgiving weekend looks like it will provide a much-needed boost this year for cashed-strapped carriers. Data compiled by analytics firm OAG reveal that bookings for November are down around 88% compared to last year. "The Thanksgiving holidays are typically a peak traffic and profit period. At some airlines, in some years, the single highest profit days," airline industry analyst R.W. Mann told Business Insider.

Below, we take a closer look at the world's largest airline by scheduled revenue passenger miles and a popular exchange-traded fund (ETF) that specifically tracks stocks involved in the airline industry. We'll also analyze their charts to identify possible short sale trading opportunities.

American Airlines Group Inc. (AAL)

Earlier this month, Fort Worth-based American Airlines said that it plans to slash its November schedule by about half, citing the need to match its itinerary with lower demands for travel over the holiday period. The carrier said that it sees 25% as many November bookings compared to this time last year. In better news for the airline, the company recently said it expects its cash burn to slow in the fourth quarter to between $25 million and $30 million per day, down from $58 million in the previous quarter. As of Oct. 28, 2020, American Airlines stock is trading down 60% on the year, underperforming the industry average by 20%.

After traveling sideways for several months, the share price broke below an established trendline this week, opening the door to further falls in subsequent trading sessions. Moreover, the completion on Tuesday of an ominous three-day technical pattern known as three black crows suggests the bears have taken control of the action. Those who take a short sale at these levels should look for a retest of the pandemic March low at $8.25 while managing risk by placing a stop-loss order somewhere above the 50-day SMA.

Chart depicting the share price of American Airlines Group Inc. (AAL)
TradingView.com

The three black crows pattern consists of three consecutive long-bodied candlesticks that have opened within the real body of the previous candle and closed lower than the previous candle.

U.S. Global Jets ETF (JETS)

The $1.55 billion U.S. Global Jets fund invests in companies involved with the airline industry, including passenger airlines, aircraft manufacturers, airports, and terminal services companies. However, U.S. large-cap passenger airlines still account for about 70% of its portfolio. Low-cost carrier Southwest Airlines Co. (LUV) and full-service airline Delta Air Lines, Inc. (DAL) both command double-digit weightings. The ETF turns over nearly 5 million shares per day on narrow spreads to keep costs low for active traders. JETS issues a 2.2% dividend yield and has tumbled 41% year to date as of Oct. 28, 2020.

The fund traded roughly within a four-point range between early July and October before breaking down when its price ran into the 200-day SMA last week. Tuesday's close below a seven-month trendline may accelerate the selling, possibly triggering a fall to the March 19 low at $11.25. Those who execute a short sale positioning for such a decline should set a stop above Friday's high at $18.71. The trade offers a lucrative risk/reward ratio of over 1:4, assuming a fill at yesterday's $17.28 close ($1.44 risk per trade vs. $6.03 reward per trade).

Chart depicting the share price of the U.S. Global Jets ETF (JETS)
TradingView.com

The risk/reward ratio marks the prospective reward an investor can earn for every dollar he or she risks on an investment. Many investors use risk/reward ratios to compare the expected returns of an investment with the amount of risk they must undertake to earn these returns.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.