Airline stocks have surged as the price of oil has declined. More gains for the airlines will be hard to come by in the short term.
US Global Jets
exchange-traded fund (ticker: JETS) has risen 28% to just over $21 a share from its closing down for the year of $16.91, hit March 7. During that rally, the price of WTI Crude oil tumbled to around $100 from $130, a multiyear peak hit on March 8. Oil has dropped as encouraging headlines on the Russia-Ukraine war have emerged. That makes further restrictions on Russian oil less likely, which would stop the oil supply crunch. A lower oil price is good for airline profits because a chunk of their operating expenses are fuel costs.
Now, airline stocks have a tough test ahead of them in order to see more gains from here. The Jets ETF is just below its 200-day moving average or right above $22. That means the market is still pricing these stocks at below their longer-term trends, signifying still-weak confidence for the moment. And the 200-day moving average has been a pain point for these stocks recently. In most of the fund’s multiweek rallies for the past couple of years, it has failed to rise above this long-term average. When it rallied from the start of December to mid January, it didn’t cross its then 200-day moving average, for example. If the fund can move above this average, it would signal that its stocks are getting back on track more sustainably.
The other key test for the fund is if it can make a higher low. Let’s take a scenario in which the price of oil sees another surge. Airlines stocks could easily tumble, but if the fund can fall to a point that’s still above $16, that would signify investors are eager to buy, that there are more willing buyers at higher price points. “The next test is to see if it [JETS] can digest the next pullback, form a higher low,” said Frank Cappelleri, chief market technician at Instinet.
Whatever the stocks do, investors might have to wait for earnings reports to see them move significantly higher. The recent rally has already been a fast one. now,
United Airlines Holdings
) reports earnings on April 18, while
American Airlines Group
) reports April 28,
Delta Air Lines
(DAL) reports April 13, and
(LUV) reports the 28. The market is hoping to see that people are continuing to return to traveling and that sales will beat current expectations.
For the moment, “The risk-reward [for the] short term is not good right now,” said Cappelleri.
Write to Jacob Sonenshine at firstname.lastname@example.org