With Oil At $44 And Holidays On Tap, This Sector Could Be Poised To Take Advantage
Monday, December 8, 2008
by Jim Stanton, Technical & Quantitative Analyst, Smart Profits Report
Just before the Thanksgiving holiday, when I last wrote to you, I mentioned that the stock indexes had hit all my intermediate-term, downside price targets and that the correction may have ended.
One might think that with the bevy of bad economic news since then, including last Friday’s dreadful November job report - the worst in 34 years - the stock market would have collapsed again.
Not quite. The indexes have rallied and actually remained above their lows posted on November 21.
In fact, during the holiday-shortened week of November 24, the S&P 500 rallied more than 20% and triggered some intraday buy signals. Alas, it coughed up about 50% of those gains during last Monday’s sharp decline.
The S&P 500 Is In “3-Wave Mode”
But while most folks are scrambling to join the crowd and sell off during an index decline, it actually provided a great, short-term, buying opportunity. As such, I recommended buying some index calls to subscribers of my 1-2-3 Trader service.
Take a look at a 2-hour chart of the S&P 500 below…
By triggering these intraday buy signals, the S&P 500 should be tracing out at least a 3-wave move to the upside, with a target price around 927. Last week’s action set up an alternative target around 898 and if this is just a bear market rally, there’s a 35% chance that it could stop there.
The daily charts are still short and need to trade up to the 923 area just to set up a buy signal, so we’ll have to wait and see if we’re looking at more than just a bear market rally.
Let’s dig a little deeper…
Holiday Season Rush To Rub Off On Airline Sector ETF
Along with the major stock indexes, many individual sectors have made new lows over the past week, which throws up an interesting situation.
While they’re set up to trigger daily buy signals in the days ahead - a good sign, for sure - the sectors that haven’t hit new lows recently show us that they’ve performed better overall. The theory here is that when the markets do turn, the relatively stronger stock sectors will outperform those that are struggling.
One sector that could be set to outperform is the AMEX Airline Index (AMEX: ^XAL). In its favor right off the bat is the fact that it made its lows for the year back in July. Take a look at the daily chart below…
As you can see, XAL seems to be tracing out a “pennant” formation, with the downtrend line currently sitting at $24.50 and the uptrend line around $16.10.
Last Friday, the index closed just above its 200-day moving average. That’s a plus, but in order to “break out” of this pennant formation, it would need to close above $24.50 a couple of times. If it does, the index should continue higher.
Of course, the other major factor in XAL’s favor is the fact that oil prices are now trading around $44 a barrel. Given that fuel is a major expense for airlines, oil’s dramatic 70% slump since hitting a high of $147 in July is a big reason why XAL hasn’t hit new lows. As I mentioned, the last time it did so was in July, which coincided with oil’s record levels.
While a rebound in oil prices could have an adverse effect on XAL, the index appears to have tracked the performance of the stock market since September, rather than the price of crude. Compare this with our Smart Profits Report article on The Airline Sector last year. Moreover, it should receive a boost from the busy holiday travel season. The key will be how the index acts if we see a rebound in crude oil prices.
Either way, if XAL has enough strength to breakout above the downtrend line, it should move higher.
That’s all for this edition. Until next time…
Jim
How One Company's Groundbreaking "Cancer Blaster" Could Make You Rich
While the World Health Organization predicts 12 million people will develop cancer in 2009, this little-known company is fighting the surge with its amazing cancer-killing device...
Although most people know nothing about it, this "Cancer Blaster" has already saved thousands of people around the world... Like Ohio resident, Caroline Brubaker, who says "with just three, pain-free outpatient visits, I had my life back" or Richard Swanson of Arizona who ended up cancer-free after just 4 hours of treatment...
The best part is, the company recently discovered an extraordinary breakthrough that could go mainstream in a matter of days... Read the full details to find out how you can get in ahead of the event - and be on your way to booking truly incredible gains.
|
One Response to “With Oil At $44 And Holidays On Tap, This Sector Could Be Poised To Take Advantage”
[...] my December 8 “Sector Watch” column, I included a 2-hour intraday chart of the S&P 500, so let’s get right up-to-date, as of [...]