Despite the economic turbulence that appears to be far from over, one sector continues to produce some positive price activity for investors: travel stocks. Airline and hotel stocks immediately come to mind, but we think a derivative of the sector has become even more attractive: discount travel stocks.

Airlines have dealt with the economic slowdown by cutting routes and grounding planes, but the resulting moves have put pressure on airline travel expenses. So these days, discount travel companies are a must for cash-strapped consumers.

Priceline, Travelzoo and Expedia all work to get travelers a deal. From a fundamental perspective, these companies all possess a good story: helping travelers unearth discounts as ticket prices go higher. That’s translated into technical strength for these travel stocks, which are all sitting above technical support, suggesting a potentially powerful second half of 2010.  

Priceline (PCLN)

A positive earnings surprise shot Priceline.com Incorporated (NASDAQ: PCLN) through the roof last week (22% in one day!) to an all-tine high. But there’s a lot of negative sentiment toward the company, as many try to call a top or fade the surge. We’re seeing this primarily in the options pits, where traders have pushed the put/call ratio to an annual high.

Though the stock has retreated a bit from the $300 level, we think the shares have room to run, especially should pessimism among options players start to unwind into additional buying pressure. 

Travelzoo (TZOO)

Travelzoo Inc. (NASDAQ: TZOO) is a smaller player in the sector that offers investors solid profit potential as it benefits from deal-hunting travelers. Sentiment toward the stock is pessimistically positioned, especially among the short-interest crowd (short-interest ratio of more than 20!) and analysts (one “buy” and one “sell”). That tells us that it will be easier for this company to be swept higher on less-than-bullish news. 

Why? Any move higher will likely force many of the shorts to close their positions by buying back the stock, thereby creating a short squeeze that should intensify the buying. Analysts should also jump on board with “buy” recommendations. It’s a classic contrarian play.

On the charts, the stock is hanging in along its 100-day moving average, with the 20-day coming up to lend support. A pop up to the 2010 high near $21 represents a gain of more than 30% from current prices. 

Expedia (EXPE)

The other big name in this group is Expedia, Inc. (NASDAQ: EXPE), which is also seeing the bullish combination of positively trending technicals and bearishly biased sentiment. The stock has gained more than 30% off its July bottom and is poised to take out its April high near $26.

We’re seeing an interesting technical pattern with EXPE — a 10-day/200-day bullish crossover. The last time the 10-day crossed above the 200-day was in April 2009, amid a rally of more than 300% that spanned more than seven months.

With an extremely high put/call ratio and relatively high short interest, the stock’s current bullish trend should start converting bears into bulls, meaning that they will also turn into buyers of the stock. Keep an eye on this one as it breaks toward new 2010 highs.

Double Your Money on the Rumor AND the News — Learn how to cut through the rumor and manipulation surrounding corporate earnings announcements and bank money-doubling option trades all year long. Download our FREE trading guide here.