A surprising sector is showing up among the top overall performers over the past 4 weeks: Guggenheim Airline (FAA). This fairly quiet trading (both in terms of volume and options) FAA is up almost 11% over the past 4 weeks, at the top of the ETF rankings when you exclude Ultras & Bears.
FAA is fairly non-diversified, with 96% of its assets in its Top 10 holdings, and a great deal concentrated on 3 major U.S. carriers, Southwest (LUV), United Continental (UAL) and Delta (DAL).
Taking a look below at the recent move, you can see airlines were in a steady downtrend over the past 6 months. The one major attempt to penetrate above Middle Bands & Exponential Moving Averages in this downtrend came at the beginning of 2011 … and failed at the Top Bollinger & Acceleration Bands.
The current move in FAA began before Crude Oil’s (USO) sharp breakdown in the wake of Bin Laden’s death and the sharp profit-taking in other commodities. However, the decline in Oil prices likely has helped FAA push above its Top Acceleration and Bollinger Bands in recent days — so in my analysis a reversal in Oil is likely to cause this FAA rally to peter out, if one occurs. However, don’t fight the trend as we often say … and this ETF is showing relative strength versus other sectors and the broad market, in addition to having a technical breakout recently.
FAA Daily Chart
Bottom Line: In terms of long-term holdings, I’ve never been a big fan of U.S. airlines in general because of low profit margins in the business and other structural problems. But for a short-term play, assuming Oil prices are not going back higher, FAA looks attractive here, with 37 a low risk entry point.
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