Grow Your Portfolio the Intelligent Way

ETF Talk: Are Airlines Ready to Climb?

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By seadmin

Airlines and their related exchange-traded funds (ETFs) recently got a boost, as they hit 52-week highs, given lift by the broader market rally. The recent Icelandic volcano eruption kept European flights grounded for a number of major carriers and caused the share prices of those companies to dip. The question is whether airline stocks will continue to fall or whether they might be ready to rise again.

Keep in mind that when the 50-day and 200-day moving averages that I track fall well below current equity prices, stocks typically pull back — just as they did yesterday when the Dow Jones Industrial Average closed at its lowest level since April 7. However, such market retreats offer a chance to profit if you make the right trades.

If you think airlines will recover from the recent market turbulence and fly to new heights, the Claymore/NYSE Arca Airline ETF (FAA) may be the right fund for you. The FAA ETF is designed to mirror the performance of the NYSE Arca Global Airline Index, which tracks the largest and most liquid common stocks and American Depository Receipts (ADRs) of airline companies that are traded on the exchanges in developed markets. The index holds shares in 25 companies from 14 countries, with market capitalizations ranging from $750 million to more than $9 billion.

News of a possible merger between United (UAUA), Continental (CAL) and US Airways (LCC) has helped fuel anticipation that FAA could be on its way up. Even a merger between United and Continental on their own could mean upside, if the airlines consolidate resources to boost revenues and margins.

As you can see below of the five-day chart of FAA, the fund fell during this past week, as news of suspended transatlantic flights worried investors. 

A small blip in the ETF’s upward trend could be a good entry point.

1-year Chart

I am not currently recommending FAA, but I am watching it closely for key technical signs that could cause me to book a flight on this airline ETF. If you want advice about buying and selling specific ETFs, including appropriate stop losses, please sign up for my ETF Trader service. As always, I am happy to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.

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