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Trade what you observe, not what you believe

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I believe that's the mantra Jeff Bailey subscribes to, and today it applies to the Airline Index (XAL.X). With headlines like, "The only thing rising at United is losses," one would believe that airline stocks are plummeting.

Airline Index Daily Chart

Looking at a chart of the Airline Index doesn't exactly mirror the fact that 3 of the 5 major airlines reported worse than expected losses. For example, United Airlines (UAL) alone posted a net loss of $305 million. XALs daily chart shows that after completing a double bottom pattern, prices consolidated for three days before exploding yesterday. XAL has broken the 50-day moving average, and is getting ready to test the 200-day.

Frontier Airlines

Today at Premier Markets we closed out our American Airlines long position for a nice profit, and now were looking for another airline stock to "monitor" for future trades. I'm not anxious about entering a new position going into option expiration Friday, but Frontier Airlines (FRNT) might be worth watching. Frontier is getting ready to complete a cup with handle type pattern, if it can break above $14.06. There is an impeding moving average crossover test to contend with, and the MACD is getting ready to try an assault on the zero line. I'll file this stock under wait and see until tomorrows picture becomes clearer.

Jeffrey Canavan
Assistant Analyst

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