Wednesday, November 12, 2008

Airlines: Land mine or Gold mine?

With the collapse of oil prices the Transportation sector should be in position to benefit; the question is whether the Airline industry has the capability to do so? The sector has been surprisingly robust since bottoming in July; the Dow Jones US Airlines Index has made repeated challenges on its 200-day MA but still hasn't found the momentum to break through. But at least it is challenging its 200-day MA, something none of the leading indices have been able to get anywhere close too as they struggle around their meager 20-day MAs.

Some commentators viewed the OPEC cut in crude output as a reason to short on the assumption of rising oil prices; although the Republic Airways Holdings (RJET) used as the example failed to reverse from resistance as anticipated on the news.

Improving Profit Forecasts led to 'Strong Buy' Zacks ratings for eight carriers, including Ryanair (RYA):

A former pilot made some astute calculations comparing fare cost with cost of fare; it showed only two airlines making a profit: Southwest (LUV) and Delata (DAL)

Lufthansa (LHA) called off negotiations to take over Scandinavian Airlines. The uncertainty of the deal likely kept Lufthansa shareholders on edge given its trading action this year; will prices rise from here?

Will SAS break from its range?

Given the dearth of market leadership, airlines are perhaps one of the few sectors which could see benefits into 2009. If airline stocks can break and hold their 200-day MAs it will put them on the radar of many potential investors - investors looking for some (any) pockets of strength in the market. Next year will likely see slim pickings for stock pickers so there will be very little competition for attention; attention which is up for grabs. Will airlines seize the day?

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Dr. Declan Fallon, Senior Market Technician, the free stock alerts, market alerts, and stock charts website