Barron’s Jack Hough published a major call on the airlines this weekend. “Airline stocks are poised for a breakout as the reality of improved profits overrides concerns on capacity growth…” A primary lever noted by Hough (and other air bulls I might add) is the dramatic drop in fuel prices. I thought I would take a look at the charts after Monday’s trading to see if the thesis resonated.
I should note here, that I’m not a big fan of the airlines as businesses… The great service some of them provide aside, it’s a perpetually boom bust industry as a result of the immense power of the unions, fickle nature of fuel prices and, worst of all, the prisoner’s dilemma of capacity additions. That said, good looking charts are good looking charts…
As always, in the words of the rating agencies after the Great Recession, these “are just my opinions.”
American Airlines Group [AAL] — Maybe worth a long trade AFTER its clears the Value Zone to the upside… incidentally, the top of the Value Zone coincides nicely with longer term resistance as far back as the middle of last year. A break of the rising trendline would make for a good hard stop. If price makes it back down through the most recent swing low, take the ticker off your long watch list.
Delta Airlines [DAL] — A close above the top of the Value Zone (also approximating previous resistance) would be enough to warrant looking for long setups. Use a break through the rising trendline and/or the most recent swing low (just below $40) as a hard stop. Again, if that recent swing low is broken, remove the stock from your watchlist.
United Continental Holdings [UAL] — United chopped around in a fairly narrow range for most of 2014 before finally breaking out to the upside at year end. Recent price action has come back to test the top of that congestion and looks set to bounce. Taking a lower timeframe long setup in this area with a hard stop down around $49.50 or just below the rising trendline looks interesting. The more conservative trader should wait for price to clear the top of the Value Zone before looking for buy setups.
Southwest Airlines [LUV] — The horizontal lines denote the support zone drawn out by previous price action. If you like the company/this play, you can look for lower timeframe buy signals here, once price breaks above the Support Zone and/or Value Zone, etc. Use fairly tight stops on lower timeframe long plays unless/until price breaks down through the bottom of the Support Zone.
Jetblue Airways [JBLU] — Play Jetblue in much the same way as Southwest. The chart is a bit more attractive as price is already above both the Value Zone as well as the support zone created by recent price action. Longs with an $18 hard stop look good. If price can get down through the Value Zone, take it off your long watchlist.
Virgin America [VA] — I don’t generally like looking at charts with this little price action… That said, Virgin looks to be basing close to it’s all time low. Price has already pierced the downtrend line and is trading near the top of it’s price range back to the beginning of May. If price can clearly and convincingly break through the top of that range ($30ish), look for long entries on a lower timeframe. I would use the bottom of this price range or the all time low $26.50 as a hard stop.
Hawaiian Holdings [HA] — One of the better looking charts among these… I would look for long setups right here. Just below $20.75 looks good for a hard stop.
Other tickers mentioned…
Hope this is helpful.