U.S. equities are responding strongly to the announcement of another Federal Reserve interest rate hike on Wednesday. This was the hike second in three months, representing a big acceleration from the prior pace of just two hikes in the last 10 years. Moreover, it was a “hawkish hike” as Fed officials also increased its year-end 2019 interest rate estimate to 3%.
Markets, oddly, reacted in exactly the opposite way one would expect.
Stocks rallied strongly after the announcement (rate hikes are bullish now? Even though tightening campaigns result in bear markets and recessions?). Treasury bonds rallied, pushing down long-term rates. Gold and silver surged, ostensibly on inflation expectations, and the U.S. dollar weakened.
These could all be head fake moves, or perhaps an indication the market isn’t convinced the Fed will follow through with its hawkish threats. Or maybe the fear is that the Fed’s aggressiveness will prove a policy mistake, especially with the Atlanta Fed’s GDPNow real-time estimate of Q1 GDP growth falling to 0.9% this morning.
Volatility and strangeness aside, the bounce is unable to mask some fresh breakdowns underway in airline stocks. Significant technical breakdowns were seen near the open before the bulls could wrestle prices higher and cover the damage. I think these are dead-cat bounces ahead of continued weakness.
With that in mind, here are five airline stocks to avoid.
Airline Stocks to Sell: Southwest Airlines Co (LUV)
Southwest Airlines Co (NYSE:LUV) shares dropped hard below their 50-day moving average on Wednesday morning, returning to the $52-level first reached back in January.
This threatens to end a multi-month uptrend — started back in November — that ended a long two-year sideways consolidation centered on the $40-per-share level. Cowen analysts downgraded the industry group on Monday, warning that investor expectations were too lofty after three airlines, including LUV, lowered their unit revenue outlook for the first quarter for a variety of reasons.
In Southwest’s case, the downside guidance was spurred by loss of traffic due to California’s rain storms and soft demand in the second half of February.
The company will next report results on April 27, before the bell. Analysts are looking for earnings of 65 cents per share on revenues of $4.95 billion.
Airline Stocks to Sell: Delta Air Lines, Inc. (DAL)
Delta Air Lines, Inc. (NYSE:DAL) shares are rolling down away from resistance near the $52-level — continuing a sideways slide going back to late 2014, which the bulls have been unable to overcome.
On Mar. 9, DAL lowered its first-quarter unit revenue guidance: It now expects Q1 total revenue per available seat mile to be around 1.5% to 3.0% vs. prior guidance of 2.5% to 4.5%.
Delta will next report results on April 13, before the bell. Analysts are looking for earnings of 77 cents per share of DAL on revenues of $9.2 billion.
Airline Stocks to Sell: JetBlue Airways Corporation (JBLU)
JetBlue Airways Corporation (NASDAQ:JBLU) remains range-bound near $20; down 13% from its January high above $23, JBLU stock is riding support just above its 200-day moving average.
JetBlue shares remain well off of their late 2015 high above $27. Back in February, JBLU lowered its full-year 2017 available seat mile growth guidance by one point to a range of 5.5% to 7.5%.
JetBlue will next report results on April 25, before the bell. Analysts are looking for revenues of 26 cents per share on revenues of $1.65 billion. Watch for a break of JBLU’s 200-day moving average to put the early November low of $17 in play.
Airline Stocks to Sell: United Continental Holdings Inc (UAL)
United Continental Holdings Inc (NYSE:UAL) shares are falling down and out of five-month consolidation range returning to mid-November levels.
UAL shares led the initial retreat lower this morning as losses for the week climbed above 11% thanks to management comments to a JPMorgan conference that capital expenditure growth will be smaller than previously expected. While this will boost near-term profitability for United, it comes at the consequence of losing ground to competitors amid a scramble for capacity and intense competition.
UAL will next report results on April 20, after the close. Analysts are looking for earnings of 35 cents per share on revenues of $8.3 billion.
Airline Stocks to Sell: American Airlines Group Inc (AAL)
American Airlines Group Inc (NASDAQ:AAL) shares are dropping out of a multi-month consolidation range going back to November. AAL stock is testing its 200-day moving average for the first time since October.
The reversal of the October-December rally in American Airlines represents a failed test of the early 2015 highs in the mid-$50s.
On Mar. 9, the company lowered its Q1 unit revenue guidance by a point to a range of 1.5% to 2.5% with capacity down 3.7% from last year. AAL will next report results on April 21, before the bell. Analysts are looking for earnings of 49 cents per share on revenues of $9.59 billion.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers. Redeem by clicking the links above.
