How to Decide Which Airline Stock to Fly

Trying to sort out what airline stock is better than another is the same as trying to tell what apple is going to taste better than another...while standing on the ground and viewing the fruit high up in a tree. That being said, I believe you can view them in the vein of majors and regionals. I would seek to divide them into a group of 4 and a group of 6. The first would contain Southwest Airlines , Delta Air Lines , United Continental , and American Airlines . The second would include Jetblue , Spirit Airlines , Allegiant Travel , Hawaiian Holdings , Alaska Air Group , and SkyWest . Anyone willing to spend five minutes flipping through the weekly charts of these names in this exact order will see why. The first four weekly charts are almost exactly the same while the second tier mostly mirror each other, but don't align with the first tier. They are weaker. The exception to both groups is SkyWest, which has distanced itself from the other nine as the standout bull. The simplest approach on airlines is either to use the US Global Jets ETF as a guide or even the proxy to own. The list above is also done in accordance with the top 10 holdings of JETS. The top four holdings comprise 50% of the ETF in equal proportions (approximately) while the next 6 holdings comprise another 24%, again in roughly equal proportions. While I'm usually not a fan of ETFs versus individual stocks, this is a very appealing setup. And if one reviews the weekly chart of JETS, they will find not only an attractive chart, but one that represents the stronger names more so than the weaker names. If I had one concern, it would be volume. That being said, we can still use it as a proxy for technical interpretation. We'll start with the daily and work out to the longer view. JETS is breaking higher from a bull flag today that targets $36 on the upside. Previous resistance of $32 becomes primary support with $31.40 as secondary support and a stop level. Momentum and trend are bullish as the bullish crossover in the Vortex Indicator has been a good buying trigger recently. The ETF is a bit overextended based on the width of the Bollinger Bands and price pushing the top of the Band, but until we break under support the trend is our friend. As far as oil impacts the airlines as of late, the 20-day correlation has gone back and forth from positive to negative. Without consistency, there really is no cue to be had in the short-term from the price of oil. The weekly chart of JETS and the major airlines is compelling. The W pattern is very bullish with a weekly close over $33 projecting upside to $37. Again, we find a bullish crossover in the Vortex Indicator which was bullish in April of this year. Volume patterns are becoming bullish with an impending bullish crossover of the 5-week simple moving average by the Chaikin Oscillator. And for those concerned about the price of crude, the negative correlation simply has not been pervasive. We did experience a strong negative correlation during the summer months; however, last winter higher oil was bullish for the airlines. Again, there are too many swings from positive to negative for me to justify a move, either bullish or bearish, in the airlines based solely on oil prices. Overall, LUV and DAL have the best two setups outside of SKYW. AAL is solid as well, but UAL is the weakest of the top tier. Despite their weakness UAL announced a $3B stock buyback yesterday. This is approximately 16% of the company's current market cap. The caveat with buybacks is company's are not under any obligation to complete them; however, UAL recently completed a $2B buyback that began in July 2016. I would anticipate this one to be completed by the end of 2019. Furthermore, UAL turned in better consolidated traffic and capacity than either DAL or LUV in November posting 5.1% vs the 3-3.5% of DAL and LUV. If I were left to pick one, it would be LUV. I'm a fan of best-of-breed and for me that's LUV. UAL's buyback makes it appealing, but the technical picture is rough and the stock has even faded since the open today. In the end, I'm a proponent of buying JETS and playing the group as a whole to eliminate the single stock in an airline. While reviewing traffic and capacity, they generally align well across carriers; however, as an individual investor, I find it incredibly difficult to forecast a significantly shortfall in one carrier, so why take the risk, especially when outperformance doesn't seem to add much to price as evidence by UAL today.

How to Decide Which Airline Stock to Fly

In a strong sector, there are some standouts.

Columnist Conversation

Added Some Puts

Protection Via Index Puts

Human Nature and Long Term Investing

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.