Shares of American Airlines Group Inc. (AAL), the global airline operator, have remained under pressure. Despite a rally to start 2019, the stock has drifted back down to 52-week lows and is now down more than 50% since its highs in January 2018.
It may be tempting to buy the stock at this level, but a simple chart pattern is pointing to more losses ahead. Since last September, the stock has formed a descending triangle chart pattern. This is where the resistance level (in red) is sloping downwards and finding a horizontal point of support (in green).
For months, those two key levels held up and lasted long enough to create the descending triangle pattern. But last week, that support level was breached. You can see that the recent prices on the chart are staying below the green support line. This signals that a major move is starting to take place in the stock, and we know exactly where the share price is headed next.
With any triangle pattern, the direction of the breakout is the expected direction of the stock. In this case, that breakout was lower. This means we are looking for shares to continue to decline in the months ahead.
And the descending triangle pattern tells us how much of a drop to expect as well. We simply take the height of the pattern, $13 per share in this case, and add/subtract that from the point of the breakout.
This breakout occurred around $30 per share and was a downwards breakout, so we can subtract $13 from $30 to give us a $17 price target. That's another 40% drop from the current level. It seems like a dire situation for the company, and the chart is pointing to sharp losses in the next few months.
The Bottom Line
The descending triangle pattern can tell us a lot about the direction of a stock's price. With a downwards breakout for American Airlines shares, we can look for the stock to continue drifting lower. The price target for the move is $17 per share.