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Will Airlines Take Flight?


Most airlines have been perking up as oil has been falling.


A new theme I am starting to become very curious about is the airlines. Not many out there have been talking about these stocks despite the fact that most of the majors, including Delta Airlines (DAL), UAL Corp. (UAUA), JetBlue (JBLU) and a few regionals have posted better than expected earnings and revenue growth as well as improved business execution all around.

While it is nice to see the fundamentals confirm the recent relative strength, I am more interested in the technical patterns, which have also been piquing my interest of late and have me nibbling and watching closely.

  • Delta Airlines (DAL) has a very attractive double bottom formation and has since been consolidating around the $20 -$21 level. One could also view this as a cup and handle with a pivot or break point over the most recent highs of $21.05. With a $1.93 estimate for 2008 the stock looks cheap at these levels and on a break over the pivot I would definitely be interested in adding shares.

  • UAL Corp (UAUA) is not nearly as technically attractive as Delta, but it has definitely been improving. After the company's most recent earnings report, the stock broke out of a high pennant going back to the early 2007 top on strong volume, but it couldn't hold the gain and has since faded back to the 50 day simple moving average. Despite the failed break, the stock has held where it needed to and may be preparing for another attempted break.

  • AMR Corp (AMR) is another major that produced decent earnings last quarter but hasn't been able to muster any sustained traction and is stuck in a shorter-term downtrend that may be challenged today. The stock has been fading and hugging the 50-day moving average and I am watching closely for a break over the $24.50 area and follow through before I will start this name. The longer term chart is not as attractive as DAL and UAUA and needs to be watched closely.

In addition to the majors, I have noticed many of the regionals perking up, and have noted the following:

  • Republic Airways (RJET) recently reported a slight decline in year over year EPS however it is not the report we are concerned with rather the reaction to the report, and the stock caught bids quickly. The stock is now consolidating that move and starting to tighten up a bit in the $21-$22.00 level. I would consider starting this stock in here with a stop below $21.0 and an add point above $22.

  • JetBlue (JBLU) also had a short love affair with traders after its earnings report last week however the stock quickly faded and fell back below its 50 day moving average. The simple fact is these stocks have been hated for so long that any strength is never believed and I suspect this is exactly what happened here. Now that the short term flippers are done, I am watching closely to see if this stock can firmly recapture its 50 day moving average and consolidate a bit before heading higher. This is one I won't chase or add too early but I will be watching closely to see how it acts in the near future.

  • For the speculative traders out there, there is also Expressjet Holdings (XJT). The stock had and still does have a substantial short interest and recently popped after its earnings. The stock has since faded on lighter volume and looks very attractive for another go. This one is tough to trust simply because it is so hated and I wouldn't look to do anything more than a quick trade here. I would be interested in a move over $3.40 with a stop below $3.15.

What I find most interesting about these stocks is that they possess decent technical setups despite the fact that Oil has continually risen to a gazillion dollars a barrel. Today, most of the airlines have been perking up as oil has been falling and I am very curious to see if these stocks can actually catch a sustained bid if oil does start a descent that lasts longer than one day.

Furthermore, I believe these stocks may have union favor due to the recent auto agreements that have favored the likes of General Motors (GM), and Chrysler. There seems to be a sense of community wafting in the air and I am very curious to see if this love spreads into the airlines.

I like the improved fundos, the technical patterns, the play on a drop in oil and the favor of the unions, and the best part is that most traders and investors alike simply hate these stocks. Sounds like a recipe for profit to me!

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Position in UAUA and DAL.

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