It’s Hard to Believe, but this Sector is Rallying

 

Despite the increasing chances of a U.S. recession… despite the euro debt crisis… and despite being some of the worst businesses in the world, airline stocks are actually rallying.

Earlier this month, we noted how airlines sport razor-thin profit margins, are subject to wild swings in fuel costs, and require lots of capital expenditures to stay running. This makes them horrible long-term investments. But from a trading viewpoint, it’s worth noting that airlines go through big “boom and bust” cycles. These cycles can be traded for big profits.#-ad_banner-#

Airlines spent this summer in “bust mode.” Most of the big airlines lost 30%-50% of their share values in just a few months. But the sector has recently “dug in” a tradable bottom… and could be due for a “bad to less bad” rally.

In our initial write-up, we displayed a chart of Southwest Airlines (LUV) and noted shares had put in at least a short-term bottom. Today, we note how LUV’s competitor, US Airways, sports a similar bottom… and just reached its highest high in over a month. It’s a “hard trade” to buy airlines right now… which leads us to expect profits ahead.