U.S. Stocks broke higher on the news that the U.S. and China might reach a partial trade deal after all. When stocks or indexes open noticeably higher than the highest price traded in the previous session, traders refer to it as a gap up. Usually a larger gap is equated with a more bullish forecast for that stock or index. The fact that this gap occurred on the Friday before the start of earnings season is a rather significant, and bullish, indicator of trader sentiment.
In conjunction with the market moving higher, it should come as no surprise that the Volatility Index (VIX) was observed breaking lower today. The chart below shows this in a comparison of the VIX and the two exchange-traded funds that track VIX futures prices, the Barclay's iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) and Barclay's iPath Series B S&P 500 VIX Mid-Term Futures ETN (VXZ). In the chart, all three are shown breaking significantly below their recent trendlines (see chart below).
Airline Sector May Have Tailwind Going Into Earnings
If you measure over the trailing 12 months until now, the airline industry, as tracked by U.S. Global Investors' U.S. Global Jets ETF (JETS), has been given a hard landing by investors. It is down nearly 10% over that time. However, the industry group and many stocks within it made significant jumps higher today. Could it be that lower fuel prices and an uptick in demand may spur rising stock prices in the quarter ahead?
A comparison of how several airline stocks have been performing can be seen in the chart below. Although Alaska Air Group, Inc. (ALK) and United Airlines Holdings (UAL) lead this group, Southwest Airlines Co. (LUV), Spirit Airlines, Inc. (SAVE), and American Airlines Group Inc. (AAL), all moved higher. Only Delta Air Lines, Inc. (DAL), which owns its own oil refinery and is less affected by a drop in fuel prices, has shown no significant gains over the past two trading sessions.
Spirit Airlines Setting Up for Earnings Surprise
Airlines that fall in the category of low-cost carrier have shown each other fierce competition over the years. So much so that it is difficult for any of them to show enough differentiation to please investors. However Spirit Airlines is rising today on news that its Revenue Per Available Seat Mile (RASM) is expected to show improvement by the time the company delivers its next quarterly earnings report. While that sounds good, the reality is that investors quickly price in such news. Whether it has lasting impact on the share price remains to be seen.
The Bottom Line
Optimistic buyers led today's trading session as major market indexes gapped up and continued higher to close the week in strongly positive territory. Among the sectors showing significant lift, the airline industry rose ahead of United Airlines' scheduled earnings report next week. Spirit Airlines also issued positive guidance today.
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