Mapping the Transports: Part II

This is the second in a three-part series on transportation stocks. Be sure to read the first installment, which covered truckers, rail stocks and delivery companies.

United Airlines (UAUA Quote) released a dazzling set of animated commercials during the Olympic games, highlighting the many wonders of world travel. It's a shame that all I could think about while watching those visual delights were the rotten experiences I had with the carrier while living in Denver, one of its main hubs.

My mixed feelings highlight the deep disconnect between the awe of modern air travel and the reality of an industry that's taken all the enjoyment out of leaving home. Of course, the discomfort we feel when headed to the airport isn't just the fault of the airlines. We can also blame modern terrorism and crushing jet fuel costs.

Indeed, it's been a tough go for the industry since the start of the new millennium. The 2000-to-2002 bear market obliterated the sector, with a number of major players forced to declare bankruptcy and reorganize operations. Then, after a wave of consolidation and new stock offerings, energy prices ticked higher and then took off for the stratosphere.

Amex Airline Index (XAL)

Click here for larger image.

Source: eSignal

The Amex Airline Index (XAL) shows the sector peaking in 1998 and carving out a nearly perfect descending triangle that was broken to the downside after the terrorist attack in September 2001. The index bottomed out with the broad market in 2002 and began a recovery that stalled out one year later after retracing just 20% of the prior decline.

For the next five years, the index limped along in the trading range defined by the feeble bounce off the 2002 low. It finally broke down in March of this year, losing another 50% of its diminished value before bouncing in July. Price action since that time has carried the instrument back to resistance generated by the broken multiyear low.