The transportation sector has lagged the rest of the market since early September, although it has strengthened recently. Technician Greg Harmon of Dragonfly Capital highlights a sub-sector that might be taxiing the runway.
One sector of the market that is about to take off is the airline sector. Oil prices are moving lower and the chart for the index shows a very positive technical outlook. It has been moving in a very technical pattern since bottoming in March of 2009 with a tweezers bottom. Recovering quickly it made a peak in November 2010 before pulling back to the 61.8% Fibonacci retracement level at 27.15 in October 2011. From that point it retraced higher to test the 23.6% Fibonacci at 41.68 and has moved between that and the 38.2% Fibonacci at 36.13 since.
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What is important over the course of these movements is that the initial pullback did not go too deep, the range is tightening and the subsequent pullback was shallower. It is now heading higher with support for a breakout from the Relative Strength Index (RSI) and the Moving Average Convergence Divergence indicator (MACD). A break out higher targets the previous high from both a Fibonacci retracement and a measured move. Over 20% higher. The problem is this is not an investable index. But there are plenty of airline stocks that have charts ready to take off as well. Here are a few.
Southwest Airlines (LUV) is approaching the top of an ascending triangle with a move over 10 triggering a target of 13.
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Hawaiian Airlines (HA) is in a bull flag with a move over the flag triggering a target of 6.85.
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COPA Holdings (CPA) is already moving out of a bull flag with a target higher of 108.50.
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While the airline industry, in general, faces a lot of challenge, but it is still possible to make money in specific stocks.
By Greg Harmon of Dragonfly Capital
