Can Airline Stocks Sustain Their Swagger?

by Serge Berger | September 12, 2013 9:37 am

U.S. airline stocks have had a boffo year so far — in fact, it has been so good, it’s worth questioning whether those returns are sustainable at this rate.

From Delta Air Lines (DAL[1]) to United Continental (UAL[2]), airline stocks are on a tear and don’t seem in any position to stop the rally.

Because the Guggenheim Airline ETF closed back in March due to lack of trading volume, we must focus on the single stocks themselves to measure the temperature of the group.

While most airline stocks are having having a beauty of a year, it is Delta, with its roughly 90% year-to-date rally, that is really catching my eye.

From a long-term point of view of the below chart looking back to 2007, we note that Delta stock had a choppy going, though in some respects, it doesn’t look much different from the broader stock market itself.

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After bottoming in early 2009, the stock rallied hard and again retraced much of those gains by August 2011. In the August-October 2011 period, however, Delta managed to develop a significant higher low vs. its 2009 lows, which ultimately paved the way for the stock’s steep rally that began in late 2012 and accelerated in early 2013.

Hindsight schmindsight, I know, but to appreciate where a stock currently sits, we must understand where it came from. From this long-term point of view, the 2013 rally is steep — but not something that is quite yet flashing sell signals.

On the year-to-date chart, Delta stock is well supported by its November 2012 uptrend, and on Monday, it broke out of what could have been a bearish flag formation. The net result is a stock that has powered to a new year-to-date high and continues to act well around its important technical levels.

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Like so many healthy-acting stocks, DAL has rewarded trend-followers well this year, and thus I don’t feel like stepping in front of Delta on the short side … although some profit-taking along the way is a healthy strategy. The trend is your friend until it ends.

JetBlue (JBLU[3]) stock year-to-date has had a decent performance too, yet this stock hasn’t made a higher high since April.

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Lateral support for the stock is at the $6 mark, and a push past $6.60 could accelerate the stock higher again — not bad for an airline stock play that doesn’t have a slope as steep as the one of Delta.

Serge Berger is the head trader and investment strategist for The Steady Trader[4]. Sign up for his free Weekly Market Outlook Video here[5]. As of this writing, he did not hold a position in any of the aforementioned securities.

  1. DAL:
  2. UAL:
  3. JBLU:
  4. The Steady Trader:
  5. free Weekly Market Outlook Video here:

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