This Hated Asset is Threatening to Rally

 

After dipping along with the broad market last month, airline stocks are again threatening to rally.

Last month, we noted the “boom and bust” airline sector busted this summer… And it was due for a potentially big rally. Just after our note, the broad market plunged… and took the sector down another 5%-10%.

Airlines are legendarily horrible long-term investments. They sport thin profit margins, they’re subject to wild swings in fuel costs, and they require lots of capital expenditures to keep the businesses running. But for traders, they are an attractive sector. Airlines tend to go through big, tradable booms and busts. You just have to buy them when conditions look dark and everyone is bearish… and sell when things look bright and everyone is bullish.

Right now, the crowd is bearish. Airlines have suffered 40%-50% declines in the past year. But as you can see from today’s chart of big airline JetBlue, the stock (which trades for less than book value) is close to breaking out to a multi-month high. If the market stages an “end of year” rally, airlines could be good for big “rebound” gains in a short period of time.