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Airlines taking off despite earnings warning

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United Airlines (NYSE:UAL) reported that earnings would be "well" below expectations, yet the Airline Index (XAL.X) is still up 1.21% on the day? There is also a story of a Russian plane being hijacked in Turkey that should not be helping airline stocks. As I type this, American Airlines (NYSE:AMR) announced they expect to post a first quarter loss, instead of a profit.

Airline Index (XAL.X) Chart - 60-minute interval

What do you have to do to get this Index to go down? Looking at the 60-minute chart I notice a solid one-month downtrend, but prices started rallying yesterday. The only explanation I can see for prices bucking the bearish fundamental news is an oversold MACD indicator. Maybe the daily chart has some clues.

Airline Index (XAL.X) Chart - daily

What a difference a chart makes. Looking at the daily chart reveals that prices found support at a yearlong uptrend. Sometimes it's easy to get caught up in the intraday charts, and stepping back a time frame or two can change the whole picture. I still don't "fundamentally" know why airline stocks would continue to rise after two of the biggest airlines report bad news, but at least I have a technical explanation. Apparently the trend line is stronger than the news.

Jeffrey Canavan
Assistant Analyst

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