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CHART ANALYSIS


Airlines Starting To Lead

05/28/04 11:49:32 AM
by Arthur Hill

The DJ Airline Index successfully tested support in May and has started to outperform the broader market.

Security:   DJUSAR
Position:   Accumulate

This is a follow up to the early April commentary on the DJ Airline Index. Just to recap, on the weekly chart the index then formed a falling wedge and retraced 62% of the prior advance. Both the pattern and the retracement are typical for corrections. With a big surge in the last week of March and first week of April (green arrow), the index broke above the upper trendline and started showing signs of a reversal.

Figure 1: Weekly chart of DJUSAR.
Graphic provided by: MetaStock.
 
After breaking the Oct-03 trendline, the index peaked below 120 and returned to support in May. With a strong bounce in mid-May and successful support test, the index is forming a potential double bottom. Key resistance resides at 117.4 (the 6-Apr high) and a move above this level would project further strength to around 137 (117.4 - 98.4 = 19, 117.4 + 19 = 136.4). Keep in mind that a double bottom remains potential until confirmed with a breakout.


Figure 2: Daily chart of the DJUSAR.

The DJ Airline Index shows good relative strength and this increases the odds of a successful breakout. The top chart is the price relative, which measures the performance of the DJ Airline Index against the S&P 500. The price relative formed a higher low in May and broke above its April high (green arrow). Notice that the actual index remains below its April high and the price relative is leading. The breakout is still young, but shows that Airlines are leading the S&P 500 and this bodes well for a resistance breakout at 117.4.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
Company: TDTrader.com
Address: Willem Geetsstraat 17
Mechelen, B2800
Phone # for sales: 3215345465
Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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