Domestic airlines look poised to seize sector leadership from international carriers, enjoying the benefits of a strong U.S. economy; while global rivals struggle with currency headwinds, rising political tensions and the threat of trade wars that may significantly reduce cargo and passenger volume. However, careful stock picking is required because no-frills domestics, including Spirit Airlines Inc. (SAVE), face major headwinds from major carriers who are rolling out ultra-cheap economy fares to capture lost market share.
A handful of more traditional domestic carriers have eased into aviation sweet spots, with less competition on many routes translating into higher ticket prices and quarterly profits. This business advantage should continue in coming years because international carriers have ignored these smaller venues, fixed on global code sharing deals and building out European and Asian hubs.
Southwest Airlines Co. (LUV) broke out above a 12-year trendline in 2013 and entered a powerful uptrend that posted a long series of new highs into January 2015, when it topped out in the upper-40s. It then rolled into an intermediate correction, grinding out a broad triangular pattern into last week’s breakout to an all-time high. It’s now consolidating those gains and could test new support in coming weeks, offering a low-risk buying opportunity.
On Balance Volume (OBV) has lifted into a test of the 2015 high, supporting the breakout, which has posted a breakaway gap between $50 and $51.25. A decline into that price zone should attract substantial buying interest, especially if it cuts through the round number and tags the 50-day EMA, currently rising from $48.80. A bounce off either level could reward shareholders with a strong trend advance into the 60s.
Alaska Air Group Inc. (ALK) ended a long rally at $87.17 in December 2015 and sold off in a two-legged decline that found support in the mid-50s in June 2016, right after the Brexit referendum. A steady recovery wave into year’s end lifted the stock into the prior high, yielding a breakout that’s headed into round number resistance at $100 after a strong fourth-quarter earnings report.
This is a tough stock to buy right here, with $100 likely to stall or slow progress after a straight up rally from the low-70s. Also, OBV has failed to match bullish price action after incurring technical damage when it was added to the S&P 500 index in May 2016 and sold off on much higher than average volume. Given those headwinds, a pullback that tests breakout support in the 80s looks like a minimum requirement before the stock trades comfortably in triple digits.
Hawaiian Holdings Inc. (HA) ended an uptrend in the lower teens in 2008 and entered a broad symmetrical triangle pattern that yielded a powerful 2013 breakout. The subsequent trend advance eased into a rising channel in 2014, with those boundaries containing highs and lows for the last three years. The rally stalled in April 2016 near $50, giving way to an intermediate correction that carved a cup and handle pattern, ahead of a November breakout.
The uptrend ran out of gas in the lower-60s in late December, giving way to a pullback that’s now entering its eighth week. The decline reached breakout support in late January, generating narrow range action rather than a sizable bounce. The weekly Stochastics oscillator has now reached a deeply oversold technical reading, predicting the stock will regain its footing and enter a strong recovery wave. However, that doesn’t rule out a final downdraft into stronger support at the 200-day EMA, currently rising from $48.
The Bottom Line
Domestic carriers are attracting stronger buying interest than international airlines so far in 2017, with predictions of strong U.S. growth unpinning accumulation. This bullish trend should continue and lift these sector leaders into a series of bull market and all-time highs.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>