In looking at the transports sector recently, one thing that caught my eye was the recent strength in the airline stocks. While all the focus has been on other groups, the transport sector has quietly been basing for several months. Though many will point to a soft economy and high unemployment rate as reasons why airline stocks should be avoided, it's quite possible that the reduction in this holiday travel season was overpriced to the downside. Regardless of the driving force, this group should be watched as it is trying to establish a higher low on longer-term charts after bouncing back from last year's vicious downtrend.
UAL Corporation (Nasdaq:UAUA) for instance, is trying to establish the $6 area as a new floor after tagging the $3 area twice in the past two years. It recently held a test of the 200-day moving average and is trying to clear a recent trading range. It appears that it is on its way to test its September high near $10.
Delta Air Lines Inc. (NYSE:DAL) is another airline trying to establish a higher low on longer-term charts. On the daily chart (shown), DAL recently cleared a base in September on an increase in volume. Although it dropped below the breakout area in November, it quickly bounced back and more recently surged back above the 50-day moving average. While it may back off from the current level, it should be watched to see if it can clear the declining trendline through each of the recent rally peaks.
Alaska Air Group Inc. (NYSE:ALK) is a regional airline that has been considerably outperforming the major airlines. ALK is trading at several month highs and just recently cleared a base it had been building for several months. The support level to watch in the near term is the $28 area, which was the top of the prior range and coincides with its rising 50-day moving average.
Southwest Airlines Co. (NYSE:LUV) is another regional airline to keep an eye on. While it hasn't cleared the base it is working on, it looks like it has successfully held support in the $8 area twice in the past few months. This would be a logical level at which to watch for a failure as LUV works its way back up to the upper bounds of its trading range.
The Bottom Line
It is important as a trader not to get locked into any specific train of thought. Markets often act in ways that don't appear rational, and the moves are often not revealed until after the move has occurred. Are airlines perking up due to an increase in demand, an overpricing of bad conditions or simply short covering? The answer is almost impossible to ascertain, so as a trader its best to watch what people are doing and let the answers reveal themselves later as you collect your profits. While the Airlines aren't jumping out as strong buys, there could be some opportunities setting up in the near future as they try to form new floors. (For more information on this group, see Is That Airline Ready For Lift-Off?)
Charts courtesy of www.stockcharts.com
At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.