In light of weakening crude oil price lately and its proximity to the long-term resistance we’ve been following on the long-term chart over the last year+…
…I thought it would be interesting to take a look at the Airline index (which obviously would benefit from a top in fuel prices), especially after a subscriber noted it as a preferred area going forward. He’s a market analyst by profession (one of many that the NFTRH subscriber base is privileged to include).
Anyway, I took a look and this is what I found for XAL; a bounce pattern right at resistance with positive MACD, RSI and AROON (S/T trend).
Dialing out to a weekly chart we see that XAL was driven down during the 2018 rally in Crude Oil and with WTI’s recent troubles, has formed the bounce pattern just above support and the lower line of a massive rising wedge, which I would not worry too much about from a bearish standpoint. They all too often end up sounding much scarier than they are.
More perspective comes from the monthly view. As the subscriber pointed out, the late 90s deflationary/Goldilocks phase greatly benefited the Airlines (until Greenspan’s whopper of an inflation kicked off).
So if you believe the USD is going higher, Crude Oil will be contained and go lower and the US economy is going to hold up for an extended period, the Airlines are a good bet for the extent of the positive economic cycle in the US. But if those qualifiers do not prove out, XAL would be a bad bet.
I am just being a chart guy here and also offering some perspectives surrounding the sector. I am considering adding Airlines to current holdings. Please consider the qualifiers noted above before positioning.
I have not yet looked into investing vehicles here and may consider picking off a couple individual airlines. But any research would need to include what fuel-hedging, if applicable, these airlines might do. If you’d be buying primarily due to a bearish view of oil for example, you’d not want a heavily fuel-hedged Airline position.
[Edit] Some useful info from Bloomberg on hedged & unhedged airlines as of February 2018…
A reminder that chart based NFTRH+ updates are technical trade setup ideas, which may not be revisited as the buy, sell, stop parameters are already noted. They are meant as a starting point for your further research if interested. I will not personally buy every item highlighted and will sometimes sell (ref. Trade Log) any item that I do buy below target (assuming I’ve not stopped out or sold for some other reason), which is something I often do as a trader. Also please be aware that I am not a fundamental stock analyst. Due diligence is your responsibility.
