Are Airline Stocks Lining Up To Rally? (With Important Stock Market Implications) – Mike Swanson (08/25/2020)

This has been a crazy year in the financial markets. The stock market basically crashed in March! The S&P 500 fell over 32% and the bond market froze up causing the Federal Reserve to begin an unlimited QE bond buying program to keep the corporate bond market alive. The US economy in terms of GDP fell over 30% annualized in the last quarter. A lot of companies are on the path to bankruptcy and tens of millions are unemployed, but the stock market is rallying.

The stock market hasn’t rallied this year as much as silver and gold not year to date, but it has rallied. Can that rally continue?

Rallies tend to turn into new extended declines after lagging sectors inside of the stock market roll over first. This market is full of such lagging sectors, but some of those sectors are now firming up and are in a position to potentially turn up and rally. One prime example is the airline sector. Take a look at the chart for U.S. Global Jets ETF (NYSEARCA: JETS).

This ETF crashed in March and the airline industry remains devastated by the collapse in the travel industry. In fact mass layoffs are expected to begin across the airline industry hitting pilots, stewardesses, and airport workers in just a few weeks, but the JETS ETF is now in a position where it could soon breakout to the upside.

A lot of airline stocks surged on manic short squeezes in May and then dumped back down. The JETS ETF is now trading between $18 and $16 and looks like it is likely to clear that $18 resistance point to head for its May highs. I don’t know if it would be able to go to them much less much further beyond them, but a rally is a rally.

With the big cap tech stocks such as AAPL and TSLA extremely overbought the stock market needs new strength in lagging sectors at least for a few weeks to keep it going into November. The JETS ETF makes it look like that fuel is going to come.

I wouldn’t buy the JETS ETF to try to trade this as I typically avoid lagging sectors as investments, but these are the type of things that make quick trades when there is currently no entry point for stocks like AAPL and TSLA and the Nasdaq as they are all going straight up. Some of the airline stocks inside the ETF are likely to go up much more than the ETF would on a rally. For instance take a look at United Airlines Holdings (NASDAQ: UAL).

One could play the airline sector by buying UAL and putting a stop on its low of last week. You’d be aiming for a $45-50 target price by the end of September.

And Delta Airlines (NYSEARCA: DAL) is another one.

With DAL a stop would also go below its low of last week with a potential price target of $35-37.00. If these stocks were to launch it would likely happen this week. I don’t think they are great long-term investments right now as the industry is not at a bottom and its hard to know what will happen after the election. What is clear is that many lagging stocks have similar charts to these airline stocks and suggest that the stock market is going to continue to have enough buying to keep inside of it to keep the underlying bullish trend going for the time being.

-MIke



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