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Time to Buy Airlines With a Possible Bailout on the Way?

Airline stocks remain hostage to the headlines, but that doesn't mean investors should bail on them. Let's look at the charts.

Airline stocks were getting a nice boost on Wednesday. Of course, it helped that the overall market was rallying, but now we’re hearing specific news from Washington regarding the industry.

On Tuesday, President Trump sent stocks into a tailspin late in the trading session after saying that stimulus talks should be shelved until after the election.

He has pivoted from that stance a bit, while also tweeting that, “The House & Senate should IMMEDIATELY Approve 25 Billion Dollars for Airline Payroll Support, & 135 Billion Dollars for Paycheck Protection Program for Small Business.”

As a result, stocks like Delta Air Lines  (DAL) - Get Delta Air Lines, Inc. Report and Southwest Airlines  (LUV) - Get Southwest Airlines Co. Report are higher, while even names like Boeing  (BA) - Get Boeing Company Report are up too. Can the group continue to run?

Trading Delta

Daily chart of Delta stock.

Daily chart of Delta stock.

After falling about 3% on Tuesday, Delta is snapping back on Wednesday, up almost the same amount. Shares continue to hold the 20-day moving average, while also trending north of the 50-day moving average.

Bulls are in control, but that comes with a big caveat. First, they are not in dominating control and second, the group is being held hostage by talks in Washington. As a result of the latter, the group carries headline risk — and potentially opportunity.

If shares can rotate through $32.50, then let’s see if we can get a quick move up to $35. There Delta finds the 200-day moving average and last month’s highs. Above that opens the door to the June highs near $37.50, then the $42 gap-fill area.

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On the downside, be cognizant of last week’s low at $29.61. Below that will drop Delta below the 10-week moving average and the 50-day moving, putting the September low at $27.92 and the 23.6% retracement near $28 in play.

Below that and the selling pressure could pick up pace.

Trading Southwest

Daily chart of Southwest stock.

Daily chart of Southwest stock.

Up over 70% from the March lows, Southwest stock is slightly outperforming Delta, which is up about 67% from the lows. Another leading point? Southwest is down “just” 34% from its pre-coronavirus highs. That leads the industry even though it lags the indices.

Southwest continues to find support along the 50-day moving average, however, shares are finding the 20-day and 200-day moving averages as resistance.

If the stock can close over these marks, it puts the $42.50 level in play. This level has been very stiff resistance since the coronavirus selloff, but each time it’s been rejected, it results in a higher low, a bullish technical development (purple arrow).

In any regard, above $42.88 - last month’s high - puts the 61.8% retracement in play near $45, potentially followed by the 78.6% retracement near $51.

On the downside, a break of $55.82 is a concern. This puts shares below recent range support, last month’s low, the 38.2% retracement and the 50-day moving average.