American Airlines Stock crashes 40% After Positive Earnings, Why?

In the first quarter of 2025, American Airlines (AAL) shocked investors when its stock plummeted 40% despite posting positive earnings. On the surface, this seemed counterintuitive—how could a company reporting strong financial performance experience such a dramatic sell-off? The answer lies in the bigger picture: supply and demand imbalances on the monthly timeframe, a concept that often dictates long-term price movements in the stock market.

The Setup: A Strong Supply Zone at $16.60

Leading up to the crash, American Airlines had been on a steady upward trajectory, rallying for three consecutive months at the end of 2024. However, this rally brought the stock into a critical supply zone at $16.60 per share. In trading terms, a supply zone is an area where sellers historically dominate, creating resistance that can halt or reverse upward momentum.

The monthly chart revealed a clear imbalance: the stock had reached a level where supply far outweighed demand. This was further confirmed by the formation of a shooting star candlestick—a bearish reversal pattern that signals exhaustion among buyers. The shooting star, combined with the overextended rally, was a red flag for traders who understand the importance of price action and supply-demand dynamics.

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The Perfect Storm: Positive Earnings and a Strong Supply Zone

At first glance, positive earnings should have been a catalyst for further gains. However, in the context of the monthly supply zone, it became the perfect recipe for a sell-off. Here’s why:

• Market Psychology: The shooting star candlestick signalled a shift in sentiment. Buyers who had driven the stock higher for months began to exit while sellers took control.
• Buy the Rumor, Sell the News: Traders often buy stocks in anticipation of positive earnings increasing prices. Once the earnings are released, profit-taking occurs, especially if the stock is already overbought or a strong supply imbalance in a large timeframe gains control.
• Supply Overwhelms Demand: The $16.60 level was a strong supply zone, meaning more sellers than buyers at that price. The stock lacked the momentum to break through this resistance even with positive earnings.

The Aftermath: A 40% Drop to the Demand Zone at $10.65

Following the reversal, American Airlines stock experienced a sharp decline, losing 40% of its value. The sell-off wasn’t just a reaction to the earnings report but a result of the broader supply-demand imbalance on the monthly timeframe.

The stock eventually found support at a strong monthly demand level of $10.65 per share. Demand zones are areas where buyers historically step in, creating a price floor. This level represents an opportunity for traders to consider buying shares or implementing short-term intraday and option strategies.

Lessons for Traders: Patience and Price Action

The crash of American Airlines stock is a powerful reminder of the importance of understanding supply and demand imbalances, especially on higher timeframes like the monthly chart. Key takeaways include:

1. Respect Key Levels: Always identify and respect supply and demand zones. These levels often dictate where price reversals occur.
2. You do not need to combine Fundamentals with Technicals: Positive earnings don’t always translate to higher stock prices, especially if technical factors like supply zones are in play.
3. Patience Pays Off: Waiting for the price to reach key demand zones before buying can lead to better risk-reward opportunities.

The 40% crash in American Airlines stock after positive earnings highlights the critical role of supply and demand imbalances in shaping market movements. Traders can navigate such scenarios effectively by mastering price action, understanding key levels, and exercising patience. As the stock now tests the $10.65 demand zone, it presents a potential opportunity for those who understand the bigger picture.