Airlines Help Transports To New Highs

From the desk of Tom Bruni @BruniCharting

Sector rotation. Sector rotation. Sector rotation. I probably sound like a broken record at this point, but today's theme is once again...sector rotation. This time it's Transports being helped back to their January highs by an improving Airline sector. We've spoken about the relative strength in Railroads and Trucking stocks, and acknowledged the relative under-performance in Airlines two months ago, but the data has slowly shifted.

We also pointed out that although Airlines were the worst of the Transport stocks, they were hanging in there on an absolute basis. Sure, there were weak names within the sector like American Airlines, but there were also strong stocks like United Airlines. Today, however, we're seeing the relative performance of the group trying to bottom and the absolute performance of even the weakest names improve.

With this headwind out of the way, the Dow Jones Transportation Average closed at its highest levels since late January and looks poised to make new highs. If prices are above 11,110, their next upside target is 14,030.

Click on chart to enlarge view.

Additionally, the ratio of Airlines vs the Dow Jones Transports is attempting a reversal at support after momentum diverged positively at its most recent low. While still in a long-term downtrend, a counter-trend rally of 10% seems plausible if this support holds.

Airlines relative to the S&P 500 also have a similar bullish divergence, but remain below long-term support.

The first name I want to highlight is United Continental Holdings, whose chart I've been posting on Twitter for weeks and weeks at this point. It's hitting new all-time highs on an absolute basis and broke out to 10-year highs relative to the Airline sector 6 weeks ago. As long as prices are above 82, this stock looks poised for a long-term move to 131.

Hawaiian Holdings is a different type of setup, emerging from a 1-year base to the upside. While prices have made nice progress so far, a push above 46 would indicate that a test of its former all-time highs near 60 is likely.