Still Holding These Airline Stocks in your Portfolio?
This year the airline and travel industry took a major hit as the world remained at home for a majority of the year. We have seen many airline close doors this year as they have been unable to keep their employees on payroll.
Struggling to just make ends meet many airlines have had to let go of hundreds, some even thousands of hard working loyal employees. Many people I know personally have had to say goodbye to a career that worked at for years and either look for work in other industry or choose to compete in the now saturated market of applicants.
The news has been keeping a close eye on the airlines as they have been a symbol of connectivity of business development around the world. As more people travel for business there is an increase in economic growth which in result increases the amount of families that are traveling for pleasure.
After being in lockdown for weeks and having strict quarantine measures in place when travelling internationally to specific countries there is a silver lining in the storm clouds that have loomed overhead.
Market Value for the airline sunk to record low levels back near the end of 1st Quarter, 2020. They have had little growth aside from the average trading range over the last few months as the summer months entering the fall many individuals spent working from home, making zoom family meetings and taking domestic trips which often did not require the use of airline travel.
After elections in the United States came to an end we saw a strong rally in stock prices as there was a sense of optimism for the future in terms of economic growth. The airline industry was a bit of a mixed bag of tricks as some outliers grew upwards to almost 18% in just one day and others almost unchanged.
Let’s take a look at some of the companies that are within the aviation sector and how they have been performing over these last few months. It’s important to understand how the global climate has changed and how these airlines are going to be able to position themselves for the future of travel.
Cargo Airlines Dominating the Market
The cargo airlines flying around the world today have taken over the skies. With commercial airliners putting much of their fleet to rest cargo airlines have had to ramp up operations to satisfy the logistical system breakdown crisis which was at hand. This forced many commercial airlines to adjust their fleets to be more suitable for cargo operations to be able to meet the current and growing demand for goods and supplies to be delivered in a timely manner.
Getting an aircraft modified for cargo operations can take time, and funds on the part of the airline. Airlines that have already been in the market for moving cargo and have been readily available have been able to thrive in these conditions.
When we take a look at the main cargo airlines that are flying the world right now they have all had significant growth in terms of revenue and market cap. Are you still holding on to any of these cargo airline stocks in your portfolio?
Looking back at our earnings reports we see a loss reported back in June in terms of earnings per share yet the stock still had a jump up in value. Then after the last earnings report the company reported a significant increase in growth which helped fuel their fleet of aircraft to new highs. The stock rose up to just above $290 a share before it started to see some resistance and retrace back down a little.
Using a simple Fibonacci retracement tool we can see that from a technicians stand point the next zone of resistance sits at the $250 share price. The market is currently showing admiration for these stocks right now considering the total 200% growth that has occurred over the last 7 months.
There is not too much of a reason yet to sell off on FedEx yet as now they are preparing for the global distribution of a Coronavirus vaccine once it becomes ready for market. The recent consolidation is a natural flow of the stock after having a massive rally upwards in such a short period of time. Looking to see where the stock finds some support would be a key factor in determining any new entry points in terms of long term positions.
Atlas Air (AAWW)
Atlas Air Worldwide Holdings (AAWW) is a name that many out of the industry may not be familiar with. They operate a large fleet of Boeing 747 primarily focused on cargo operations. As well they own Southern Air, and Polar Air Cargo, while also focusing in aircraft leasing and ACMI transactions. The last two days show a sharp sell off in shares as the stock drops from the highs of nearly $70 a share to around $51 a share. Reaching these values from its lows of under $20 has certainly attracted many investors to the company which in result has raised its 30 day average trading volume.
Normally Atlas would not have enough daily trading volume for a retail trader to be able to quickly execute on trades. As the trading industry grows with more new investors entering the market digitally, the total liquidity of the stock is also rising, making conditions more suitable for options trading that it was before. It is important to address that Atlas Air’s stock will be slightly more volatile than the more recognizable names in the cargo industry simply due to overall lower trading volume on a daily basis.
Air Transport Services Group Inc (ATSG)
Once those large aircraft land they will need services and manpower to be able to quickly offload all the cargo and keep the plane flying on to the next destination. Air Transport Services Group has various elements of its business. From owning and operating its own cargo aircraft to also providing ground handling services to other cargo airlines. They are able to position their business to high in demand locations and provide reliable quick service that helps other business make more revenue. The stock price of ATSG is not as volatile that the other primary cargo airlines although there is some strength in the stability.
Being currently price under $30 makes it more affordable for retail investors to begin to open positions on as compared to FedEx which trades about 10 times higher. In the event that you held on to your ATSG shares through the last year then you are currently looking at around 135% in profit from the lows of March.
The sharp sell off which we see recently occurred brings price towards the first level in the Fibonacci retracement and our new potential support level. We will be watching to see how price respects this current level to be able to determine a high probability strategy to place. It is important to not rush into trades with a fear of missing out on a move. This could potentially lead to entering a more risk driven position.
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Top Traded Airline Stocks
American Airlines (AAL)
Over the last 4 months if you guessed that American Airlines was trading for $12 dollars you would have been right about 90% of the time. Sure enough after having a quick pop rally we are making our way back towards the $12 share price. For long term investors looking to hold shares of American Airlines this can be extremely frustrating to have a sideways market. For options traders there is great potential in being able to make consistent income in a sideways market.
Selling out of the money calls can bring in premium on credit into your account. Considering options are decaying assets the price of the option will begin to loose value as long as the option is not In the money. Depending on the type of account you are trading within you may be unable to sell naked calls as they can expose your account to significant risk. This is where spreads can help to reduce the overall risk that you are exposed to when selling out of the money calls on sideways trending stocks. Keep in mind that selling out of the money calls has a bearish bias to the trade.
If you are somewhat bullish on American Airlines, you may be more inclined to sell Put spreads instead. With a tight market trading sideways like we see in AAL, Iron condors tend to be the option traders favorite as it collects premium from both the call and the put side on the stock that has been range bound.
Delta Air Lines (DAL)
Delta Air Lines (DAL) has been able to remain slightly bullish during this past few months with a mainly sideways trending direction. Price spiked up to $38 touching near the same level it reached back in mid-June. Showing some rejection around that price level can lead techinicans to potentailly use that as a signal for a push back towards previous price levels. Although working in synchrony with the overall trend which is slightly bullish can be in your favor as there will be greater trading volume in your favor.
Since the peak trading days back between March and June price failed to have much direction outside of the dramatic spikes. Now that we are able to track the direction with a little bit more visual representation we can identify high probability trade set-ups. The airline stocks have not had as much of a successful year as the cargo airlines have although there has still been some growth in value over the last few months. Certainly there is still room to move to reach previous highs pre-COVID.
United Airlines Holdings (UAL)
The most optimistic goal for United Airlines Holdings (UAL) would be for the price to move up into the highlighted green range displayed in the chart below. This would be in the range appropriate to the current move of the market. This type of move would only be possible if price continues to show support at the present level and have an increase in buy orders. The most recent volume candles show that a greater amount of sell orders were placed than buy orders. A signal than can often lead to more bearish days to lead ahead.
As the market begins to regain its confidence we can expect for the public to begin flying more often for both business and pleasure. United Airlines operates a wide range of commercial flights to international locations and has had to shut down various destinations they travelled to often. As consumer confidence rises again and their routes begins to re-open then we can start to see greater return on the assets of UAL. Selling put spreads is a great way to have defined risk and reward ratios while also having a bullish bias on the stock.
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