What to make of rising oil? I'm amazed to see the trucking names breaking out across the board. JB Hunt Transport Services (JBHT), Old Dominion Freight Line (ODFL), Landstar (LSTR), Echo Global Logistics (ECHO), Marten Transport (MRTN) and Saia (SAIA) are all rolling higher this morning, pushing past resistance on their daily charts.
While I worry a bit about what rising oil prices can do, the negative correlation between oil and truckers hasn't been as big nor as consistent as with airlines. Don't get me wrong, in the long-term picture, it is still a jagged relationship, but airlines worry me more here. And not just one airline, but the entire group.
For instance, look at American Airlines Group (AAL), which has had a great last month and really isn't that far off the highs of the winter. While the indicators are all still bullish here, there are several red flags. First, the trend is waning. Both the slow stochastics and commodity channel index (CCI) have rolled over. I tend to look for a short setup or pullback when the 8,5 slow stochastics crosses over bearish, especially when it happens at or above the 80 overbought area, which we have here. Second, when the CCI dips below 100 for a second time in short succession, I expect a pullback. We have our second dip in the last month and that looks like trouble to me. Furthermore, we have a bearish divergence in momentum. The RSI made a lower high when price moved higher. This is a major concern for me as well.
While not everything is bearish here, AAL looks like a neutral at best or possibly a hedge against a long portfolio. If I were going to trade it alone on the short side, I would set my stop somewhere in the $43 to $44 area, depending on the size and my risk tolerance.
Of the big three, United (UAL), Delta (DAL) and AAL, the latter is the worst-looking name in the group. DAL actually looks the best and I would put UAL pretty close behind AAL in terms of risk. If I were going to pair them up, I would be long DAL and short the other two. Regional names are mixed, with Southwest (LUV) resembling UAL a little more than DAL, but really right in the middle, and JetBlue (JBLU) falling way out of bed before any of the others.
Given the momentum we're seeing in oil, now is the time to inspect transportation names like airlines and make certain you have alerts, hedges or a full understanding of your risk should oil continue higher.