I’ve never been a huge fan of airline stocks, but there’s no doubt that they were great performers for most of the past two years—the combination of tightening capacity (which has hiked ticket prices), an improving economy and a huge decline in fuel costs sent the stocks soaring. Indeed, most of the big carriers have monstrous earnings estimates for the rest of 2015.
But the market is always looking ahead, and today, even though earnings are huge, it looks like the sector has topped out. Check out the Airline Index (XAL), shown here—the index actually topped out in late-January, when all the news was good. And, despite a few forays by the overall market into new-high ground, XAL wasn’t able to top that January peak.
Now, this week, we’re seeing the sellers emerge, driving the index back toward its recent lows. Now, I will say the long-term 200-day moving average (red line) could offer support, and there are a stock or two in the group acting well; JetBlue (JBLU) is the best-looking one.
But the fact that the sector has had a huge advance, topped out for more than three months, and is now hitting multi-month lows—and that many key components like American Air (AAL), Southwest Air (LUV) and United Continental (UAL) are already below their 200-day lines—tells me the group is likely in trouble going forward.
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The airline sector fell dramatically after American Airlines (AAL) CEO said that airlines are expanding capacity too quickly. Get the options perspective from Jacob Mintz.