After a turbulent start to the year, airline stocks have been flying high lately. Since the end of July, the Bloomberg U.S. Airlines Index has rallied 12.4% on a total returns basis. That's a pretty stark contrast to the basically breakeven performance in the S&P 500 over that same timeframe.
But don't worry if you've missed that outperformance in airlines. Many of the most prominent U.S. airline stocks are actually on the verge of pretty substantial breakout moves. Today, we're turning to the charts for a technical look at which air carriers you should be buying in October -- and which you should steer clear of.
Delta Air Lines
Leading things off is $30 billion legacy airline Delta Air Lines(DAL) - Get Report . Delta gets top billing for good reason Tuesday afternoon after reporting better-than-expected September PRASM. Shares are breaking out of a long-term consolidation pattern. In short, after shedding 20% of its market value since the calendar flipped to January, Delta is finally looking "bottomy" this fall. And we're getting a buy signal today.
Delta has spent the last three months forming an ascending triangle pattern, a bullish price setup that's formed by horizontal resistance up above shares at $40, along with uptrending support to the downside. As Delta's stock price has pinballed between those two technically significant price levels, it's been getting squeezed up against that $40 price ceiling. Today's breakout above $40 is a buy signal.
If you're buying into Delta here, risk management is key. It makes sense to park a protective stop on the other side of Delta's most recent swing low at $37.
We're seeing almost the exact same price setup in shares of JetBlue Airways(JBLU) - Get Report . Like Delta, JetBlue is carving out a bottom after selling off for most of 2016. The big different for JetBlu is that this stock's setup is less far along than Delta's; the breakout hasn't happened yet for this $6 billion carrier. The buy signal in JetBlue comes on a breakout above $19 resistance.
Price momentum adds some extra confidence to the upside setup on JetBlue's chart here. Our momentum gauge, 14-day RSI, has been in an uptrend of its own since this stock bottomed in late June, signaling the fact that buying pressure has been quietly building in this stock.
JetBlue ended its downtrend last month, and shares are within grabbing distance of their $19 price ceiling in October. That said, from a risk/reward standpoint, it makes sense to wait until JetBlue cracks $19 before buying.
United Continental Holdings
It doesn't get much simpler than what we're seeing on United Continental Holdings'(UAL) - Get Report chart right now. This $18 billion legacy carrier has been working its way higher since the end of June, rallying in a well-defined uptrending channel. From here, it makes sense to buy the dips in United.
United's uptrend is formed by a pair of parallel trend lines that have corralled effectively all of this stock's price action since the middle of the summer. So far, we've seen four tests of the lower bound of that channel, and all four have provided low-risk opportunities for buyers to get into shares. The 50-day moving average has started acting like a proxy for support in United's uptrend since the middle of last month, making it a logical place to park a protective stop if you decide to be a buyer.
Discount airline stock Allegiant Travel (ALGT) - Get Report hasn't shared in the rest of the industry's recent positive performance. While the average airline stock is up after bottoming earlier in the summer, Allegiant is actually trading lower than it was back in June. That's the bad news. The good news is that this stock is carving out a long-term bottom. Here's when to buy it.
Allegiant has spent the last few months forming a textbook example of an inverse head and shoulders pattern, a bullish reversal setup that signals exhaustion among sellers. The pattern is formed by a pair of swing lows that bottom out around the same price level (the shoulders), separated by a lower low (the head). The buy signal comes on a breakout above the resistance line that defines the top of that price setup.
For Allegiant, that's currently at the $145 level. If Allegiant can catch a bid above $145, then we've got a clear signal that buyers are back in control of the price action.
Alaska Air Group
Alaska Air Group(ALK) - Get Report has been one of the biggest rebound stories of the last few months, propelled in part by investor excitement over the firm's pending acquisition of Virgin America (VA) . Since bottoming at the end of June, Alaska Air has rallied 23.5%.
This week, the big price level to watch is resistance up at $70. Shares have been consolidating beneath that resistance level for the past few months now, and while shares briefly traded above it back at the start of September, it was a bull trap. Now, however, Alaska Air's support level has risen to a level where shares are seeing a glut of buying pressure close enough to the $70 level that it could be enough for the stock to catch a bid above $70 and stay there. Once a confirmed breakout above $70 happens, the path is clear for a retest of prior resistance up at $82.50.
Hawaiian Airlines parent company Hawaiian Holdings(HA) - Get Report has the distinction of being one of the few airline stocks that's actually up in 2016 -- and shares are up a lot. Since the calendar flipped to January, this mid-cap air carrier has seen its share price rally more than 43%. And now this stock is signaling another leg higher thanks to a breakout that's happening this week.
Hawaiian has actually been in an uptrend for more than a year now, bouncing its way higher consistently along a trend line that stretches way back into 2015. Since April, that uptrend has been challenged by a long-term price ceiling at $50, a round-number resistance level that swatted shares lower twice this year. Today's breakout above the $50 level is a clear-cut buy signal -- and it makes Hawaiian Holdings the single most attractive airline stock from a technical standpoint this fall.
Spirit Airlines(SAVE) - Get Report is another member of an exclusive group: It's one of only two major airlines that's actually up in 2016. But unlike Hawaiian, Spirit's rally is showing some serious cracks this fall. So while most air carriers look buyable this month, it might actually make a lot more sense to take gains on Spirit at this point.
Spirit started the year in an uptrend, but zooming out on the chart, that uptrend looks more like a correction in the context of a much longer-term downtrend that stretches into summer 2015. Shares made a series of lower highs in April, July and October, leaving Spirit testing trend line resistance this week. If history is any indication, this stock could be about to get batted lower from the top of its downtrend again.
A long track record of operational excellence isn't sparing Southwest Airlines(LUV) - Get Report from a well-defined downtrend this fall. Since peaking in April, Southwest has been in selloff mode, declining like clockwork every time shares have touched the top of their price channel. So as Southwest touches trend line support for a fourth time in October, it makes sense to sell the next bounce lower.
Waiting for that bounce lower before clicking "sell" is a critical part of risk management for two big reasons: It's the spot where prices are the highest within the channel, and alternatively it's the spot where you'll get the first indication that the downtrend is ending. Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're confirming that sellers are still in control before you unload shares of Southwest.
American Airlines Group
Closing out our list of airline trades is $20 billion legacy carrier American Airlines Group(AAL) - Get Report . American's price action has been pretty straightforward for the last year, and not in a good way. Shares are down almost 20% since last October, selling off in a well-defined downtrend. This month, American Airlines is in "make-or-break mode" as shares touch resistance for the sixth time in 12 months.
So far, every other touch of trend line resistance has resulted in a selloff. The time before last, back in mid-April, actually resulted in an almost 30% drawdown from peak to trough; that's good reason to pay attention to the price action on American's chart. In the shorter-term, this stock has been tracking higher, but that's just an upward correction unless proven otherwise.
Until shares can beat the odds and break out above resistance, American Airlines is an airline stock to avoid.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.