A Hard Landing for Delta, JetBlue?

The failure of the Dow transportation average to confirm recent new highs in the Dow industrials (namely, Dow 13,000), has sent more than a few ripples through the world of old school chartists. But you don’t have to be a believer in Dow theory to take note of the potential opportunities developing in transporation stocks that are sliding toward levels where traders historically have been more inclined to buy than sell.

Airlines stocks have been the latest group within the transportation sector to come under heavy selling. Many of these stocks, from Alaska Air Group (NYSE: ALK) to United Continental Holdings (NYSE: UAL) had been trading at their highest levels in months – where not at new, 52-week highs. As such, much of the selling these stocks are experiencing in the second half of February can accurately be referred to as profit-taking. This suggests among other things that as these stocks become more oversold as a result of traders locking in gains from successful trades and investments, the potential for a new round of buying at lower levels remains strong.

Heading into trading on Wednesday, some of the biggest pullbacks in this group are in both Delta Air Lines (NYSE: DAL) and JetBlue (NYSE: JBLU), both of which sold off by more than 7% and 8% respectively to close lower for a second day in a row – four out of the past five. The selling has earned Delta “consider buying” ratings of 9 out of 10, and a short-term, positive edge of nearly 3%. JetBlue has a positive edge in the short-term that is almost three and a half percent, and has a rating of 8 out of 10, putting the stock in the “consider buying” camp, as well.

Also mentioned above, Alaska Air Group has a positive, short-term edge of just over 2%. The short-term edge in shares of United Continental also positive, but is twice as large.

There is no liquid exchange-traded fund that allows traders to trade the airlines stocks without single stock risk. The best alternative, the iShares Dow Jones Transportation Average Index Fund ETF (NYSE: IYT), includes a variety of stocks among its top holdings of which only one, Alaska Air Group, is an airlines stock. By contrast, there are three railroad stocks in the top 10 holdings of IYT, and the current weakness in the ETF, which is again oversold in bull market territory, is largely a testament to persisent selling in the rails.

Be sure to read our latest from 7 Stocks You Need to Know: “Buying the Selling in Weight Watchers”.

David Penn is Editor in Chief of TradingMarkets.com