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Is Barron’s Right About Airline Stocks?

Posted by on Jun 23, 2015

Is Barron’s Right About Airline Stocks?

Optimism over a solution to Greece’s debt deal helped push global markets higher Monday. In the US most of the major averages did close well below the day’s highs. Several of the market tracking ETFs, including the Spyder Trust (SPY) and PowerShares QQQ Trust (QQQ) both formed dojis which is a sign of indecision.

Monday’s rally has caused further improvement in the daily technical studies but they have still not reached levels that are consistent with the end of the market’s correction. The market internals were positive as the McClellan oscillator has risen further to +35 but is still well below the early April highs.

The 5.1% increase in Existing Home Sales last month also encouraged stock investors and as I discussed in Friday’s “More Signs The Economy Is Improving” there is a full economic calendar this week . I am looking for more signs this summer that the economy is strong and that those not in the stock market should be buying on weakness.

The airline stocks have been hit hard in 2015 as the S&P 1500 Airline Index is down just over 12%. Last week’s cover story in Barron’s ( “Airline Stocks Could Soar Up to 50%” ) made the case for several of the airline stocks.
These stocks rallied on Monday but are there any signs that the group is once again going to lead the market like it did in 2014?

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Chart Analysis: The weekly chart of the S&P 1500 Airline Index peaked in late January and by March 20th there were signs that the group had topped out.

  • The index tested the support in the 288-290 area, line a, which corresponded to last summer’s high.
  • The monthly pivot support is at 271 with the weekly starc- band at 267.
  • The relative performance turned positive in October 2013 (see arrow)
  • By last October the RS line was in a solid uptrend, line d, that was broken in May.
  • This was after the RS line had formed lower highs, line c.
  • A move in the relative performance above this resistance and the WMA are needed to signal that the group is leading the S&P 500.
  • The still declining 20 week EMA is now at 327.

JetBlue Airways (JBLU) was one of Monday’s leaders up 4.8% and it is the best performing US airline this year as it is up 33.7% YTD.

  • Just three weeks ago JBLU dropped below its 20 week EMA as it hit a low of $18.33 before turning higher.
  • JBLU closed at its daily starc+ band on Monday with the weekly at $23.16.
  • Using current data the 3rd quarter pivot resistance is tentatively at $24.72.
  • The weekly RS line has moved back above its rising WMA consistent with a market leader.
  • The weekly on-balance-volume is on the verge of moving back above its WMA and is also well above the long term support at line g.
  • The 20 day EMA is at $20.06 with further support in the $19.40-$19.60 area.

What To Do: There are no signs, basis the weekly or daily relative performance, that the airline group has completed its correction. One more drop back to the recent lows could complete a bottom formation.

JetBlue Airways (JBLU) has likely completed its correction unlike some of the other high flyiing airlines like Southwest Airlines (LUV) which was mentioned in the Barron’s article. Of the other three stocks, Delta Air Lines (DAL) has the best chart.