These 2 Airline Stocks Are Setting Up…Here’s How To Trade Them
I was hunting around for a nice longer term trade
and found AMR Corporation
(
AMR |
Quote |
Chart |
News |
PowerRating) and Southwest Airlines
(
LUV |
Quote |
Chart |
News |
PowerRating).
Starting with the fundamentals, here are the differences and the play I think is
there:
From the fundamentals I would prefer to be short AMR and long LUV.
Here is how the individual charts look, first AMR:
AMR is on the higher side of its range for the year. One reason you may choose
to stop out of this trade is if AMR forms a new hi on the year. If this happens
with LUV having not given me any profits yet I would definitely get out of the
trade. If being long LUV has made me money already I might consider sticking
with the trade as LUV would be behaving stronger relative to AMR.
Now for LUV:
Contrary to AMR, LUV is at the bottom side of its range. This is great if you
are a contrarian trader; AMR at resistance and LUV at support. Just like AMR at
its resistance number, I would be careful to watch if LUV starts forming new
lows.
The ratio used on this trade would be 100, or 1 to 1. This will allow you to be
capitally balanced on the pair.
Now for the spread charts:
The spread seems to be in the middle of its longer term chart, with a previous
resistance number just above 0. This is a good opportunity with a business as
usual set up. We are not trying to play a bottom or a top of a spread, just
capture some volatility and the individual stock set ups.
Remember to still wait for a good short term entry with your spread, compound
all of the probabilities that you have.
Here are some guidelines that I would use trading this:
Entry: Short at 0
Stop: 0.5
Profit Target: -5
Make sure you manage your capital that you can allocate to this trade. They are
lower priced stocks so you may be able to trade more shares, but that means that
you will also lose more money if it goes against you. In this case take the
number of shares and multiply it by $0.5 to see if you can afford the loss.
Darren Clifford
For more information visit our website at www.pairtrader.com
Darren Clifford is a professional equities trader with Bright Trading. Mr.
Clifford has recently been ranked one of the top 30 traders under 30 by Trader
Monthly magazine.
Mr. Clifford holds a masters degree in Economics from Simon Fraser University
specializing in Financial Mathematical Modeling. He is also the president of
www.pairtrader.com, company dedicated to providing the tools and data necessary
for hedged equity trading.