Thursday, April 11, 2013

Airline Stocks & Crude Oil

The airline group looks like it's gone parabolic up, and also looks to be in the midst of a possible breakdown. 

Source: Bloomberg

It's still too early to tell if this recent weakness will continue, i.e. will become a breakdown in earnest. However, if it were to follow the classic script of a parabolic cycle, breakdowns off parabolic rises typically ensue in stairstep fashion. The recent weakness will be followed by an anemic rally making a lower high, only to roll over and make a lower low, followed by another rally making a lower high, etc. etc. We'll see, stay tuned.

Also, it used to be a fairly well-understood truism that when the price of crude oil rose, airline stocks would fall, and vice versa. But that relationship seems to have disappeared since the 2009 market bottom, see chart below.

Source: Bloomberg

The lower inset shows the rolling 1-year correlation between the NYSE Global Airlines Index and crude oil. If anything, airline stocks and crude oil have more of a positive relationship since 2009. Not sure why this would be the case. Odd.

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