Airlines Ready To Fly

06/09/05 08:10:11 AM

by Arthur Hill

Despite continued high oil prices, the Amex Airline Index ($XAL) broke resistance and momentum has turned fully bullish.

Security: $XAL
Position: Accumulate

Despite a slow start in May, the price chart, momentum, and the price relative made up for lost ground with important breakouts in June. These breakouts are all bullish and point to higher prices down the road -- or rather, up in the sky.

First, let's look at the price chart (Figure 1). The index declined sharply in January and then consolidated the next four months. The pattern since late January looks like a rectangle, and the index broke resistance in early June. In addition to the rectangle, the index formed a large triangle over the last seven to eight months and broke trendline resistance in late May. The gray trendline extends parallel to the lower triangle trendline and projects a move to the upper 60s over the next few weeks and months.

Figure 1: Amex Airline Index

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

The index also shows good relative strength. The price relative measures the performance of XAL against the Standard & Poor's 500. XAL outperforms when the price relative moves higher and underperforms when it moves lower. The price relative formed higher lows (February through May) and broke above resistance in early June. This shows good relative strength and that the group is actually leading the market.

And finally, the moving average convergence/divergence (MACD) forged a breakout to turn momentum bullish. While the index formed equal lows in January and May, the indicator formed a higher low (positive divergence). This showed less downside momentum and the indicator went on to break above the red trendline extending down from November. This broke the back of bearish momentum, and MACD is trading at its highest levels since the first trading day of January.

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.

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Airlines Ready To Fly

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