Several airline stocks have the beginning of a bullish chart pattern. Suri Duddella reveals the set-up and along with the trigger levels.

Due to the Coronavirus and subsequent market sell-off, most U.S. airlines have lost 60% of their stock values in 2020. President Trump signed the $2 trillion Coronavirus relief package into law on March 27, which also gives relief to the airlines with new guidelines. This presents some cautious opportunities for the beat-up airline stocks. Also note, Warren Buffett's Berkshire Hathaway disclosed the company has sold off Southwest Airlines (LUV) and Delta Airlines (DAL) stocks as they owned 10% of each company.  

Below is a table of U.S. Airline stocks and their recent performance:

travel

There are few Exchange traded funds (ETFs) and indexes that offer exposure to the airline's industry, including: SPDR S&P Transportation ETF (XTN), iShares Transportation Average ETF (IYT), U.S. Global Jets ETF (JETS) and the ARCA Airline Index ($XAL).

Trading ABC Patterns

The ABC Chart Pattern and its related AB=CD Chart Pattern are prime examples of “symmetry" in the markets. These harmonic patterns help traders to identify buying and selling opportunities in all markets and in all time-frames.  The ABC and AB=CD patterns are first described by H.M. Gartley in his book "Profits in the Stock Market." The main advantages of trading harmonic patterns are that they allow traders to determine risk vs. reward ratios beforehand as they forecast key market turning points and profit targets for traders. The ABC pattern can be a continuous or reversal pattern and is shaped like a lightning bolt. 

Identification

 The following chart show ABC Bullish pattern formation and its trade information in TradeStation software.

abc

As you can see, the ABC Pattern begins when a market sets a low, rallies and then corrects. When the market fails to make a new low and reverses higher, the signal is set up. Once the market takes out the high of the previous move, a buy is signaled. It is more likely if the correction stops at a key Fibonacci retracement levels, like 38.2% or 61.2%.

Trade Entry: After ABC pattern is completed, it is advisable to wait for the pattern to confirm a reversal signal using any momentum based indicator or price confirmation mechanisms. Enter after a long trade above the Entry Level ('EL'). 

Stop-loss: A stop is placed few ticks below C (in Bullish) or few ticks above C (in Bearish) levels.

Targets: The ABC Pattern targets are computed using the AB and BC swings. The height pattern (AB) is used to project target levels from C-level using Fibonacci ratios. The first target zone is (62% AB) from 'C' and second target zone is (127% AB). A secondary target level is set at 100% AB Level.

ABC Bullish Patterns in Airline Stocks

The chart below shows several ABC Bullish Pattern formations in airline stocks. Most patterns require underlying trends as confirmation. None of these stocks have trend confirmations to truly signal the long price entries into stocks, but you can see when momentum could signal a buy.

United Airlines (UAL) ABC Bullish Pattern

UAL is trading in ABC Bullish Pattern in its daily chart from a low of $17.80 to a high $39.78 with a retracement of 82.92%. If prices close above $26.10, a long trade may be entered with a stop below $21.55, and targets are set $35.10 and $43.54.

Alaska Air Group (ALK) ABC Bullish Pattern

ALK is trading in ABC Bullish Pattern from a low of $20.02 to a high of $34.25 with a retracement of 75.02%. If prices close above $27.03 a long entry may be entered with a stop below $23.57, and targets are set at $32.40 and $37.81.

Delta Airlines (DAL) ABC Bullish Pattern

DAL is trading in ABC Bullish Pattern from a low of $19.12 to a high of $35.89 with a retracement of 84.22%. If prices close above $24.66 a long entry may be entered with a stop below $21.74 and targets are set $32.10 and $38.54.

UAL

Find more of Suri’s work at surinotes.com.