We saw an impressive rally in the airline stocks yesterday:
AMR rose $.94 or 11.4 percent, to $9.20. AirTran rose $.41 or 11.8 percent, to $3.89. Continental rose $1.55 or 10.1 percent, to $16.94. DeltaAir rose $1.56 or 19.5 percent, to $9.55. JetBlue rose $.70 or 15.5 percent, to $5.21. Southwest rose $.40 or 3.7 percent, to $11.24. UAL rose $2.18 or 19.8 percent, to $13.18. The rally was predicated on the notion that the Delta and Northwest merger would benefit the industry. In addition, crude prices have moderated. Is this enough to justify a 20% rally on half average volume in United Airlines (UAUA)? Today we shall see if the stock can hold on to its gains. At this point we are watching UAUA closely as we feel it is overbought and stands to correct by 10-20%. If major support is broken it could return to single digit levels. The fact is that during a major global recession, airlines are going to see a lot less business. United has the worst balance sheet, inept management and it is doubtful that they will find the capital to finance any kind of merger. They also have very high overhead, because of their high employment and many hubs. We expect this to take a toll on investor confidence moving forward. We began building a short position yesterday in anticipation of an overbought market correction today. We feel there is still opportunity to short this stock. Good luck trading!
