New Pick in High-Flying Sector

Focus: STOCKS

With all the problems of Boeing’s 787 Dreamliner all over the news in recent weeks, MoneyShow’s Tom Aspray takes a technical look at an often-troubled sector to see if there are opportunities.

The daily ranges picked up a bit on Thursday, but again, the buyers seemed to step in as most of the major averages did close well above the day’s lows. The S&P futures hit a low of 1494.50 before lunch and then closed the day at 1505.

The housing sector was hit the hardest as Philadelphia Housing Sector Index was down 1.2%. On the plus side were the Dow Jones Transportation and Utility Indices, which were both up 0.25%.

In the transportation sector many are speculating that American Airlines (AAMRQ) and US Airways Group (LCC) will merge, maybe as early as next week. This would create the largest world airline as it would kick United Continental Holdings (UAL) out of first place.

The airline companies always seem to be at the mercy of the fickle consumer and oil prices, so as a sector, they seem to get less attention from analysts and the public. In looking at the performance of this sector since the March 2009 lows, I regret not keeping a closer eye on this group.

Since the bear market lows the Dow Jones Airlines Index (DJUSAR) is up a whopping 221% versus a 125% gain in the Spyder Trust (SPY). Some may wonder if a merger will give the sector a further boost and whether opportunities still exist, let’s take a look.

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Chart Analysis: The weekly chart of the Dow Jones Airlines Index (DJUSAR) shows that it has reached trend line resistance, line a, that goes back to early 2008.

  • In January of 2007, the Index made its all-time high of 164.41.

  • The 50% Fibonacci retracement resistance stands at 95, which is 11.7% above current levels.

  • The major 61.8% retracement resistance stands at 112.

  • The relative performance has just moved above the resistance from early 2012, line b.

  • A strong close above this level will confirm that the sector is starting a new period of outperforming the S&P 500.

  • The weekly OBV moved above its WMA in early December and then last month moved through the downtrend, line c.
  • The chart has first support at 80 with more important at 72-74.

Southwest Airlines (LUV) finished second behind JetBlue Airways (JBLU) in a recent ranking of low-cost airlines.