Is a chart breakout on the horizon at IAG?

There are absolutely no indicators that can guarantee a share price will move in a particular direction, but a handful are well worth watching closely. At present, International Consolidated Airlines Group SA (LSE:IAG) is producing one of our favourites; what we call a horizontal trend, or glass ceiling.

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The pattern is relatively straightforward. Price action converges around a horizontal resistance level, creating a ceiling that the share price must overcome before a potentially significant move can develop. The sensible approach is to wait for confirmation rather than anticipate the breakout.

In IAG’s case, that means watching for a closing price above 446p, the highest relevant closing level along our marked resistance line. A sustained break above this threshold could provide the catalyst for a more meaningful upward move. We have drawn our green line at 450p, but the technical distinction matters. A close above 446p would provide one form of confirmation, while an intraday move above the previous high would offer an alternative signal.

Another approach is to wait for the share price to exceed the highest intraday trading level within the pattern. For IAG, that points to the high recorded on 27 July at approximately 455p.

Naturally, waiting for the higher confirmation level could eat into potential profits. Nevertheless, both breakout scenarios suggest an initial target around 488p, leaving a potentially worthwhile move for the observant and suitably risk-aware trader.

Source: Trends and Targets. Past performance is not a guide to future performance.

Why horizontal trends deserve attention

We often point out that a trend break, in isolation, is rarely a reliable indication of future gains or losses. Horizontal trends, however, have historically been an exception that we believe deserves particular attention.

The reverse pattern is equally important. When a series of successive highs creates a glass ceiling, a series of corresponding lows can form what we call a glass floor. If that floor eventually breaks, the resulting downward move can be both sharp and pronounced.

For now, though, the balance of the technical evidence suggests that IAG may be harbouring some upward ambitions.

IAG: the bullish and bearish scenarios

There are two principal scenarios to monitor, with clearly defined price levels for each.

The bearish scenario

A move below 394p would threaten a reversal towards an initial downside target of 363p. If that level also fails to hold, our secondary projection points towards 320p.

For a trade based on this downside scenario, a stop-loss around 414p appears to be the tighter option, subject to the trader’s entry price, risk tolerance and execution strategy.

The bullish scenario

A move above 414p looks more interesting from the upside perspective. If momentum develops, our initial target sits at 447p. A break beyond that level would bring the secondary target of 488p into focus, potentially taking the share price into the zone associated with the horizontal trend breakout.

Beyond that, a further advance could put 548p on the radar as a longer-term secondary objective.

Of course, these levels are technical projections rather than guaranteed destinations. Confirmation, market conditions and the price action around each threshold will determine whether the anticipated moves develop.

Source: Trends and Targets. Past performance is not a guide to future performance.