Date:07/19/2015

Ticker:$AALAmericanAirlinesGroup,Inc.
Event:Earnings07/24/2015PreMarket

MICRO/MACROANALYSIS

$AALemergingfrom$AAMRQ(formerticker),whereittookadvantageofdebtrestructuring,
mergedwith$LCC(USAirways),andpostedearningsgrowth,continuestobeavaluetrade,
whichcanpropelthisnamelikeagrowthstock.

ThereareseveralfactorsthatmakeaninterestingQ2FY15earningstrade:

Establishespragmaticdebtrestructuring
OvercomesDOJspeculationonblockingmergerdealwiththenUSAirways
Gap&goafternewticker$AALwhileeventuallyfreeinguplockedupshares
Earningsgrowthpropelsnametodoublestockprice
Notimmunetofuturessellingonmacro,wherevaluebecomescheap
Transportshelpedbyoildeclineonreducedfuelcostspropels$AALonmacro
Earningsupholdingkeepspriceafloatdespitevariousdistributionperiods
Oilbeginsarebound(deadcatbounce)unwindingTransportsspeculation
Negativespinoncheaperfuelcoststocutfaresforincreasedcompetitiveness
DOJspeculationoncollusionprobe
Oilbeginstodeclinefromdeadcatbounce
Earningsinlineorbeatcanhintresiliencyandconfidenceaidedwithpositive
forwardguidance(devilisinthedetailspsychologically,notfundiesmodels)

Thebasisforthe$AALearningstradeisaplayoninvestorpsychologythathasbeenthroughits
phasesofoptimism,andwavesofstresscycles,buttheunderlyingconclusionperpetuallyeach
earningsseasoniswhataretheexpectationsforearningstokeepvaluationonthepathfrom
cheaptorich,andsustainabilityfromheadwindsfromregulatorsandtailwindsofinputcosts,
whichinthepasthastemporarilyhinderedthestock.Onecancrunchnumbersallday,butthe
tradefoundationisnotbuiltfromquantifiedfundamentaldata,rathertherecentinfluenceson
investorpsychology(andthosevariableequilibria)thatisshiftingthetideonmarketpositioning.
Theeventangleisnotsomuchabouttheprofitabilityexpectations,butreleaseofmarketdriven
tensionfromthewidearrayofcatalysts.

Tworecentcrowdsareatariskofbeingsqueezed,oneisalreadyhappening,theothermay
taketheearningspunch(bullishcall)togetthegearsshiftingonthat.

TheneartermbearsaretheonesthatrecentlysoldontheDOJcollusionprobe,requestedbya
politician.Pleasenotefuturesbasketsellingisbroadnotspecific(forthosewonderingabout
Greecey
bears).$AALhasahistoryofprovingwrongnegativespeculationsourcedfromthose
reactingtotheDOJ,tobridgethegaponwhatitmeansforearnings,asweseenwiththelate

$AAMRQdays,thusthereissubstantialriskthataprobethatultimatelyyieldsnoevidenceof
collusioncapitulatesthoseshorts,withanotherquarterofsolidearningsgrowthandguidance
thatbrushesoffthateventasanoverreaction,noneedtoawaitanyDOJannouncementasthat
psychologydiminisheswithspinsonprofitability.Thusfar,thetechnicalbearishengulfingday
on07/01/15thatensuedoncethatDOJspeculationhitthewire,hassincebeenreversed
subsequenttradingsessionslater,theheatison.

Toaddtotheupsidereversalin$AAL,notethepriceofoil.Itsstartingtodeclineofftheinside
month&down,andstartingtoattempttobendthe50handle.Thepsychologyofwhatfallingoil
doestoanindustrywhichnearlyonethirdoftotaloperatingcostsareconstitutedonjetfuel
costs,therecentcrowdthismonthprovidesatailwindtothetransportationindex,thusincluding
$AALsolongasoilhoversnearthelows,asthatdynamicisstillsomewhatvalidtomarket
psychologypoststickershockeffects.Thisisarepetitivepsychologythatoilfuturestradersand
transportationsectorinvestorscannothelpbutpayattentionto,regardlessiftheircausations
arebiasedandbackwards,andthelageffecttakeslongthanexpected,asmarketswillattempt
toleapforwardasmuchaspossible.Weveseenthisduringthepostwheelsfalloffmomoin
theenergysectorlatelastyear,whichthenbottomedthetransportationsector.Historyrhymes.

Theotherrecentcrowd,alsosomewhatnearterm$AALbears,aretheonesthatsoldbasedon
whatreducedfuelcostswoulddotoairlineshavingtoreducefaresandincreaseroutestokeep
beingcompetitive.Thisisoneoftheparanoidcrowdsthatdidallegedlymovepricedownon
relativelyhighvolumeon05/20/15,butislikelyanoverreactionthatisseeingitsunwindaswell,
ifupbeatearningsandguidanceshiftthoseeasilyswayedcrowdstorethinktheirpositiononthe
negativesofloweroilprices,tothefactthatitsactuallyanetpositive(ifoneweretopicksides),
thoughtheelasticitiesattimesgetwayoverblown,thusleadingtobackwardscausationbiases
onoilpricethegrowth,whichweveseenwhenoiltradebetween90110+.

ThusanearningsgapandgoonEPSfigureandguidancewouldcausethecapitulationof
neartermbears,andforcechangesinratings,whichputsinfocusthesellsiderspostQ4FY14
earningssellingpressureonapennybeaton01/27/15,andsubsequentdowngradefromCredit
Suisseadayafter,andfurtherdistributiontwodayslateronmacroasoiltemporarilyclosed
higherduringabounce.Thestockhasntmadenewhighssincethe56.20highpreQ4FY14
earningsrelease.AnditerationsofthisscenariocontinuedwithQ1FY15earningscycle.

OutsideoftheDowtheoristsandoil/transportspsychology,alookattheotherairlinenames
lookcompellingaswelltosupportthegroupaswhole.$ALKhasmadenewhighsthismonthoff
atechnical2barreversalstrategymonthtotheupside.$DALisanoutsidemonthtoupside.
$LUVisattemptingtoprintamonthlymomohammer(sameas$AAL).$SAVEisattemptinga
reversalstrategyattempttotheupsideonthemonth(insidemonth&downrejection).$UALis
attemptingtoprintdualmonthlymomohammers.Theevidenceformomentumtotheupside
(althoughnotubiquitouslyconfirmed)areshapingupmoreprobabletotheupsideatcurrent
pricesfromourperch.(seeTAchartsbelow)

Overall,therearemacrocrowdsagainthatmaybeplacingchipsonthetableagainon
transportsbecauseofthismonthsnearly10handledeclineinoilthusfar,andmicrocrowds
gettingclosertothedayofdiscoverythataresiliencyinearningsdespitedowngrades,pastrips
inoil,andthelongarmofthelaw,causesportfoliomanagerstoaddtolongtermpositions,and
takeastabattherollercoastertransportsgiventheeventsthepastyear.Ablatantmissand
sosoguidancewouldmean$AALbullswouldhavetofishforcheapervalueuntilnextquarter,
butourviewremainsthatthenextupcomingearningsblockisnotachoppingblock,butone
thatbuildsthestaircasetoeventualnewhighs.

TRADEANALYSIS

RecommendationBeforeQ2FY15Earningson07/24/15:StrongBuy

InvestorRecommendation:Staylongandscalein.

TradeRecommendation:Stock,StockonMargin,BuyCalls,CallsSpreads,SellPuts
dependingonlevelofriskandaggression.Thegeneralideaisnothingnew,buttotradethe
shortscapitulationintensifiedbyrenewedinvestorinterest,ifoneneedstoputitinmorewords.

Forthoselookingtoleverthisidea:

Q2FY15EarningsTarget:47.0049.00+

ATM/OTMCallOption:

$AALJUL41541Offer1.20.
.
(anystrikesinbetweenaswell)
..
$AALJUL41546Offer0.11

Stock(Cashorleveraged)
:

Entry:41.85
Stop:40.06
Exit(Scale):49.00
RTR:7.15:1.79or~4:1

TECHNICALANALYSIS

(1of2)
[ClickforHigherResolutionImage:
http://bit.ly/1CQ9LHG
]


(2of2)
[ClickforHigherResolutionImage:
http://bit.ly/1Icmjtm
]