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Why Airlines Have The Best Technical Outlook In The Market

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Why Airlines Have The Best Technical Outlook In The Market
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  • The performance of the stock market during the Santa Claus Rally period could indicate its direction in the first half of 2016.
  • Oppenheimer expects the Dow Jones Industrial Average to correct to 16,000 in coming months.
  • The firm currently sees technical strength in airline stocks.

In a new report, Oppenheimer analyst Ari Wald discussed the stock market's technical setup heading into the end of 2015. Wald also named airlines as the best-positioned group from a technical perspective.

Santa Claus Rally

The Santa Claus Rally refers to the tendency for stocks to rally during the last five trading days of a year through the first two trading days of the New Year. Historically, the S&P 500 has averaged a 1.8 percent gain during this period since 1928 and has produced a positive return 78 percent of the time.

This year's Santa Claus Rally period begins on December 24, but Wald notes that the market's performance during this period can have an impact lasting much longer than seven days. In fact, the S&P 500 tends to underperform for up to six months following the Santa Claus rally period if it fails to generate positive returns by the end of the second trading day of the New Year.

Q1 Correction

Oppenheimer is calling for a correction in the Dow Jones Industrial average in Q1. Wald believes that the Dow's rebound rally has peaked at 18,000 and that its broken three-year uptrend will lead to a correction to the 16,000 level in coming months.

Airlines Showing Technical Strength

Despite the gloomy outlook for the Dow, Wald sees technical strength in airline stocks. "Following the breakout above decade-long resistance, we view this year’s weakness as healthy consolidation and, accordingly, as an opportunity to buy the industry’s long-term turnaround," he explained.

Oppenheimer's top buy ideas include Alaska Air Group, Inc. (NYSE: ALK), Delta Air Lines, Inc. (NYSE: DAL), JetBlue Airways Corporation (NASDAQ: JBLU), Southwest Airlines Co (NYSE: LUV) and United Continental Holdings Inc (NYSE: UAL).

Disclosure: the author has no position in the stocks mentioned.

Latest Ratings for ALK

DateFirmActionFromTo
Feb 2018UBSDowngradesBuyNeutral
Feb 2018Imperial CapitalMaintainsIn-LineIn-Line
Jan 2018JP MorganDowngradesNeutralUnderweight

View More Analyst Ratings for ALK
View the Latest Analyst Ratings

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