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Airlines Rebound on Lower Oil Prices; DAL Generates Buy Signal

David Becker
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Airlines Rebound on Lower Oil Prices; DAL Generates Buy Signal

The DJ US Airline Index ($DJUSAR) is bouncing after becoming oversold earlier this week. The overall trend for this index is clearly up. The index hit a 52-week high with a big breakout at the end of 2012 and continued higher with a steady advance throughout 2013 and 2014. With oil prices moving lower by more than 3% last week, transportation sectors such as the airlines are benefitting from potential lower fuel costs. Prices of crude oil continue to trade on the defensive and are lower on Monday printing very close to the $100 per barrel level.

The CCI on the Airline index hit -100 or lower and then moved above zero. -100 is a mild oversold condition that develops during a correction. The subsequent break above zero signals that the correction is ending and the uptrend is resuming. On the price chart, the index is on the verge of breaking the early June trend line.

Delta Airlines (NYSE:DAL) declined from a peak near 42.50 in early June to a low of 35 in early July experiencing a correction of more than 17% during the period. The next level of target resistance for DAL is the 50-day moving average seen near 439.00.

Last week the stock price rebounded and momentum is turning higher. The short term MACD (moving average convergence divergence index) generated a buy signal as the spread (the 5-day moving average minus the 13-day moving average) crossed above the 6-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal. The RSI (relative strength index) on DAL never reached oversold levels despite the 17% decline, but has rebounded to 42, which is on the lower end of the neutral range.

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