December 6th, 2008

Do You Believe It? The Airline Industry!

[Note: IBD mechanically ranks their 197 Industry Groups as follows: “A proprietary number obtained by calculating the least-squares curve fit of summed prices on certain stocks within that industry. Another calculation is then done using all companies in the group. Separate weightings are used for different time periods. Groups are ranked from 1 (best) to 197.”]

It’s been a long time since I last spoke about any particular industry group and with good reason. How could anyone single out one industry group as having prospects when nearly ever single stock was dropping like a stone.

This week, however, I had to dust off the Industry Group Tracker tool (my own take on how to best utilize IBD’s Industry Group Rankings) since Industry Group controls about 30% of a stocks performance (market being the prime mover at about 50%). Rather than just look at the Groups currently ranked at the top, I look for groups that may be ranked near the top in the future by highlighting Industry Groups that jump significantly in their ranking. And this week I saw something interesting.

My intent is to find stocks that, through their market action as recorded in their charts, appear to offer profit opportunities. I don’t explicitly factor in the reasons and causes for the price action; I piggyback on the fundamental analysis performed by the “herd” and watch as they charge a stock or group of stocks. Here’s what I saw this week:

Six of the Groups that moved up in rank continues to be the Regional Banks. I first wrote about Regional Banks (when the market was much higher than it is now) on May 21; follow up postings were May 24 and than again on October 11. Regional Banks are well represented in the list of “Golden Cross” stocks and the IBD 100 list.

But what really caught my eye was the Industry Group that moved up the most in ranking and the #1 Industry Group: Airlines. It was just Thursday that I lamented “Where Are Those Chart Patterns of Old?” And today, I find several stocks that look like they’re real honest to goodness reversal patterns. It’s understandable that this group may be bottoming and soon turning up because of the unbelievable decline in energy costs, the cut back in surplus capacity and the premium services they’ve introduced much to our dismay like extra charges for checked bags.

Again, I don’t pay much attention to “fundamentals” but here’s price action that’s compelling even if the fundamentals are almost unbelievable. All have “Golden Crosses”, three are “Perpetual Call Options” (stocks priced under $10) and many have favorable volume and OBV patterns. One, ALGT, is in the Model Portfolio (click on symbol for enlarged chart).

Have a good trip!

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