Leading Off…Should you still LUV AAL?

June 13, 2014

Screen Shot 2014-05-05 at 9.13.38 PMTim Reazor
Chief Investment Strategist
NorAm Asset Management

I’m reaching into the NorAm Asset mailbag this evening (I pen this newsletter in the evenings – it is sent out early the next morning) to answer a question that many dear readers seem to have.

 Should I sell my airline stocks?

 Let’s focus on two highfliers (pun intended) that I’ve talked about on our radio show or newsletter – American Airlines (AAL) and Southwest Airlines (LUV). Let’s look at AAL first.

 As you can see from the daily chart below AAL looks broken.  It has gapped down and sold off on high volume.   These are two very big red flags.  AAL has also closed below the 21-day exponential moving average.  This is another bad sign.

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Now let’s look at the weekly chart of AAL.  As you see things aren’t so bad.  We’ve come down to the 8-week exponential moving average and found support.  This is a very good sign!  Is the volume still high for the week?  Yes.

 More on AAL in a moment and what you might consider doing if you own shares or options.

 Now let’s take a look at LUV.  We’ll look at both the daily and weekly charts.  It’s the same story… things look dramatically worse on the daily and somewhat better on the weekly.

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What’s the strategy?

 I’m not a seller at the moment.   If I’m holding shares of AAL and Luv I need one more piece of information to confirm a sell signal.  If we close again below the 21-day exponential moving average then I’m a seller and I’d look to re-enter once price stabilized.

 If I’m a holder of June options; I own a decaying asset.  Time is not on my side. I’m most likely a seller tomorrow.  If AAL or LUV go down I’m selling, if they are flat I’m selling and if they go up I got a gift and I’m selling into strength.  I’m making that decision most likely at the end of the day.  If AAL and LUV drop dramatically at anytime tomorrow I’d cut them right away.   I don’t want to enter options expiration week (next week) behind the preverbal 8-ball praying for a run higher to save a position.

 Owners of options that don’t expire next week (meaning you have June 4’s or greater) you’re fine.  The trend of the stock is still higher and intact.  If we broke the upward trend I’d then sell and wait for my next set-up.

I hope today’s newsletter helped.

Best Regards,

Tim

The information presented is for educational and entertainment purposes only.  Opinions and information expressed are based upon information considered reliable.  However, factors are constantly changing and should not be relied upon. You need to do and verify your own research.  

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