A Small-Cap Transport Has Daylight Ahead

 | May 07, 2013 | 5:00 PM EDT
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Earnings season is winding down, and this means short-term investors can begin to breathe once again. Holding positions through earnings can be a harrowing experience, and many traders (myself included) generally prefer not to unless we're in them for the long term.

As companies report, however, they offer a chance for a fresh perspective on short and near-term positions without the risk of the extreme adverse moves that can be triggered when investors do not care for what they hear. One poignant example of this was last week's earnings release from LinkedIn (LNKD).

One company in particular has caught my attention recently is Fly Leasing (FLY). Late last week, Fly Leasing reported a profit of $1.15 for the quarter, up from $0.78 year over year. Revenue, meanwhile, rose to $114.4 million, from $9.9 million. The airline industry can be a tough sector to be in, as companies are often saddled with large amounts of debt, but Fly Leasing has made strong inroads in decreasing that debt (down $70 million this past quarter alone).

Fundamentals aside, Fly Leasing has been cleared for takeoff on the technical side. The stock had been in a multi-year congestion that lasted from 2011 into this year, but it broke free in February and March of this year and rose sharply. Over the past six weeks, the stock has fallen into another period of congestion.

FLY Monthly

This time, the pause is on the daily time frame. The monthly breakout was assisted by favorable volume. As Fly Leasing's stock based, volume dropped. This indicates a lack of participation by the bears, and it enhances upside breakouts. The volume confirmed this, as it increased with the monthly breakout. This same development in volume is now playing out on the daily charts as well.

FLY Daily

Although in this case the volume is a strong factor, the momentum or pace of the monthly breakout also suggests that this is just the beginning of the upside move on the larger time frame. The daily rally earlier this year would not have been exceptional had this been any other stock. The average daily range throughout the rally was average to only slightly above average. On the weekly chart, however, the move is much stronger than the overall rally from 2009 into early 2011 that came before the 2011-2012 trading range. This suggests that further upside will continue to perform well.

Fly Leasing also faces very little immediate overhead resistance on the monthly time frame. The most notable levels will be $19.50 and $22. The levels of weekly resistance prior to the $22 zone should last for only three or four months before the trend continues. Boeing (BA) experienced similar monthly development and is worth following as well for further buying as the year progresses.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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