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Airline stocks could be approaching an attractive entry point.
The group has fallen sharply in the past three months, with Spirit Airlines, JetBlue Airways and Hawaiian Holdings down more than 20% and other big names not far behind.
The US Global Jets ETF (JETS), a basket of 52 stocks in the airline industry, is down nearly 13% during this time frame.
“Maximum fear” has turned out to be a good time to buy from airlines, MKM Partners chief market technician JC O’Hara told CNBC’s “Trading Nation” on Wednesday.
“I’m not going to water it down: the airlines’ technical setup is pretty bad here,” he said, referring to a chart from JETS with arrows indicating past peaks in the daily number of Covid cases -19.
“There’s some support around $ 21.50, but I think in this case it’s not the support that matters. It’s the sentiment,” O’Hara said.
JETS climbed nearly 1.5% Thursday morning to around $ 22.56.
“When there is this maximum fear around the virus, it has offered a great entry point into the airlines,” he said. “The sentiment is very hard to pin down in real time, but I feel like we’re getting closer to maximum fear, so I think in the next few days or weeks to come we’ll see a very attractive entry into the airspace. “
Airlines stocks could feel the heat of the new mask mandates in the coming weeks or months, said Steve Chiavarone, portfolio manager, equity strategist and vice president of Federated Hermes.
Overall, however, “the risk / return for airlines is on the rise,” Chiavarone said in the same interview.
He noted that the delta variant had not had as severe an impact as the original strain of the virus in India, where it was first identified, or in the UK, where it first spread. times. He added that he expected to see a spike in infections in the United States “in the coming weeks.”
New cases of Covid in India and the UK have declined from their delta-fueled peaks. The CDC said on Monday that the seven-day average of daily Covid cases in the United States surpassed last summer’s peak. He also warned that the delta variant is as contagious as chickenpox and could make people sicker than the original strain.
“We think you have a second opportunity here to buy the reopening trade after a three month discount that has occurred over the past two months,” and that goes beyond airlines, Chiavarone said.
“In cyclical sectors in general, we believe there is a real positive risk / reward ratio at current prices, knowing that you may have a bit more volatility in the coming weeks,” he said.
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