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Big Old Jet Airliner...

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...don't carry me too far away, and airline stocks haven't. The did get a nice bump after fuel prices started to come down, but the trip seems to have come to an end.

Airline Index Daily Chart

After completing a triple top, the Airline Index (XAL.X) dropped down to test the April low. In the process of trying to rally, the index tried to complete a double bottom pattern. Closing above 145 would have completed the pattern, but today's 1.32% drop has temporarily put a halt to that. XAL is now trying to find support at 142, and then 140.

Northwest Airlines Daily Chart

Perhaps one reason the Airline Index was unable to complete its double bottom pattern, is that some of its individual components are stuck at resistance. Supply had been piloting Northwest Airlines (NASD:NWAC) since January. Demand tried to take the reins in May and June (the red 5 and 6), but failed at $27 both times. Yesterday NWAC made another attempt at giving a triple top buy signal, but was once again turned back at $27. This point of resistance also has the bearish resistance line suppressing NWAC. If Northwest can't breakthrough this stiff resistance the Airline Index may have a hard time completing its double bottom.

Dow Jones Transportation Average Point and Figure Chart

The DJ Transportation Average (TRAN), of which airlines are a major component, has also had a nice July, gaining 15% since June 26th. But even that gain couldn't change the fact that supply is still in control of this sector, and has been since late February. That's when transports flashed a sell signal, that hasn't been reversed since. TRAN has rallied up to 3,000 three times, but has failed to climb the one more box needed to flash a buy signal and put demand in control. With the index down 3.60% today, it is within 5 points of reversing back into a column of Os, and possibly on its way down to 2,700.

Jeffrey Canavan
Assistant Analyst

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