what happened
Shares of American Airlines Group (NASDAQ: AAL) rose 10% on Wednesday morning, a day without any industry news and when the rest of the airline industry was relatively quiet. It’s hard to know for sure what drives the stock higher, but I guess it’s engulfed in the biggest story playing out on Wall Street at the moment.
Approximately
The markets are currently discussing the dramatic moves of, among others, equities GameStop and AMC Entertainment Holdings. Both stocks have risen much higher over the past few days as a result of a Reddit booking community known as WallStreetBets.
WallStreetBets focuses on stocks that are not held by investors and is looking for companies with a large number of their shares that are being sold short. A short sale is a bet that a stock price will fall, and sometimes a stock can rise higher than bulls can create a short press that forces shorts to cover their pessimistic bets.
Image source: American Airlines.
American Airlines is one of these stocks. About 171.3 million of its 610.8 million outstanding shares, or about 28%, are currently being sold short, according to S&P Capital IQ. This compares with about 4.4% of United Airlines Holdings (NASDAQ: UAL) shares, 2.9% of Southwest Airlines (NYSE: LUV) shares, and 2% of Delta Luglyne (NYSE: DAL) shares.
While there is nothing on the Reddit forum to suggest that the WallStreetBets group has been actively targeting Americans, I probably think that short sellers who are suffering huge losses on stocks like GameStop and AMC Entertainment are also earning from other positions. This creates the demand for buying US shares, which causes the price to rise higher.
About 75 million U.S. stocks traded at 11:30 a.m. EST on the day. On a typical day, about 100 million shares trade during the entire session.
Now what
Investors need to be careful here. American was the shortest airline for a good reason. Although the company must have the cash reserves to survive the COVID-19 pandemic, it has entered the crisis as the weakest of the major airlines, and will likely need longer than most to recover.
I do not currently view American as a compelling buy compared to Delta or Southwest, but then again it seems dangerous to shorten the stock as the rollout of the vaccine accelerates, even without external forces weighing the shares.
The best thing for long-term investors is to ignore and keep up with the chaos that is currently unfolding with buying strong companies and the turmoil.