Stock Of The Day: Will American Airlines Break Out?

American Airlines Group Inc. (NASDAQ:AAL) is trading higher on Monday. The stock is testing resistance as the historic government shutdown may be coming to an end, which could be a catalyst for a breakout.

Breakouts tend to be followed by moves higher. This is why American Airlines is our Stock of the Day.

Resistance in a market is a price level or a narrow range where there is a large amount of supply or shares for sale.

If a stock is moving higher, it is out of equilibrium. There are more shares to buy than to sell. Those who wish to purchase are forced to outbid one another to attract sellers.

This puts the stock into an uptrend.

But things change at resistance levels. There are as many, or possibly more shares for sale than there are to be bought. Buyers can acquire as many shares as they like without having to push the price higher.

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This is why rallies halt or pause at these levels.

Sometimes a stock will reverse and head lower after reaching a resistance level. This happens when anxious sellers become impatient.

They are worried that someone else may be willing to sell their shares at a lower price. Anxious sellers know that buyers will come to them.

Because of this, they lower the prices at which they are willing to sell their shares. Other anxious sellers see this and do the same. It results in a snowball effect that pushes the price lower.

Sometimes, when a stock reaches resistance, buyers overpower sellers and push the price higher. This is called a breakout, and it may be about to happen with American.

This action shows that the traders and investors who created the resistance with their sell orders have finished or canceled their orders.

With this large amount of supply off the market, buyers will once again be forced to outbid each other. This could put the stock into a new uptrend.

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