Airlines comprise the weak link that’s slowing the momentum of the Dow Transports, but a look at the charts shows that there is one airline stock that is bucking the trend and acting strong.
Over the past few weeks, I have been closely watching the Dow Jones Transports, as this was the only major average that made new yearly highs in early July. Since the March 2009 lows, the Transports have outperformed the S&P by 60%.
The week ending July 7, the Transports made a new high at 5627.85, but closed the week near the opening level at 5548. On the weekly candlestick chart (see below), this price action forms a “doji,” which is a sign of indecision. A higher close this week (i.e. above 5342) is needed to avoid further loss of upside momentum.
In looking at the industry groups in the Transports, the airline stocks are clearly the weak link, while the railroads are acting the strongest. This should not be too surprising, as typically, when crude oil prices are high, shipping via rail becomes more cost effective, while airline profits tend to suffer.
AMR Corp. (AMR), the parent company of American Airlines, has been in the news this week because of its plans to upgrade its fleet of planes by purchasing more fuel-efficient and quieter planes. It has been a rough few years for AMR, as the company has racked up some serious losses and is no longer the largest US air carrier.
Though the majority of domestic and global airline stocks also look negative, from a technical standpoint, there is one that is bucking the trend.
Chart Analysis: The weekly chart of the Dow Jones Transports shows that the week after the doji was formed, the Transports dropped 3.7%. This is a bearish chart pattern that requires a move above 5627.85 to turn positive.
The S&P Airlines index shows a well-established downward trading channel, lines g and h. It has dropped 26.8% from the November 2010 highs at 136.32. Since the May 2 high in the S&P 500, the Airlines are down 9.8% while the S&P is down just 2.5%.
NEXT: See Which Airline Stock Is Bucking the Dominant Trend