24/7 Wall St.

After the Continental Airlines, Inc. (NYSE:CAL)  merger announcement with UAL Corporation (NASDAQ: UAUA) , something interesting happened in the sector.  Suddenly the valuations seemed too high.  Then the shares started selling off, then the bloodbath in the market only made things worse.  We took a look at the ETF called the Claymore/NYSE Arca Airline (NYSE: FAA) and then some other airline components such as AMR Corporation (NYSE: AMR), Delta Air Lines Inc. (NYSE: DAL), Southwest Airlines Company (NYSE: LUV) and JetBlue Airways Corporation (NASDAQ: JBLU).

Continental shares closed at $22.35 on April 30, then at $22.86 on May 3.  But on May 4, the stock fell to $20.53 and to $20.14 on May 5.  Then on Thursday came the big market correction and suddenly Continental was at $18.60 (with an official low of $16.29) and it closed out the week at $18.61.  On the same first two days, UAL went from $21.60 to $22.11 and then closed the week out at $17.89.

So from the Monday close to Friday close, each of the shares of Continental lost 18.5% and UAL lost 19%.  The Claymore/NYSE Arca Airline (FAA) closed at $35.44 on May 3, yet by Friday it went down 4 days in a row and closed down at $31.22 for a loss of 11.9%.  As for peers, AMR closed at $7.59 on May 3 and $6.68 Friday for a loss of 11.9%.  US Airways (LCC) closed at $7.39 on May 3 but closed at $6.38 on Friday for a loss of 13.6%.

The two big investor favorites in the non-legacy carriers are Southwest Airlines (LUV) and JetBlue Airways Corporation (JBLU).   Southwest went from $13.40 down to $12.39, for a loss of 7.5%.  JetBlue’s drop went from $5.70 to $5.32 this week, for a loss of 6.6%.

We took a basic look at MACD, RSI, and then at the stochastics in Continental, AMR, the FAA ETF, and JetBlue and saw where these are all now entering oversold territory; the charts of Southwest, UAL and Delta are not really into the oversold space yet on all accounts.  While the oversold reading are not excessive and are not showing a MUST-BUY NOW signal, it looks like that is starting to build up to the case.  It may be a few more days before these signals look like the October to November slide in 2009.  Still the oversold levels are at the point that the airlines are starting to look interesting again from a technical perspective.  The drop in oil prices should be good for the airline sector, even if the Iceland volcano is not a help at all to the international carriers.  Now you just need the stock market to cooperate.  And maybe the airlines could demonstrate as a group that they can be profitable during the recovery.

Do you support the Continental-UAL merger?  Tell us what you think in an anonymous poll.  We want to know if you think this is good or bad for investors and then good or bad for consumers.  The poll is below and you get one answer for each question:
[polldaddy poll=3145991]

JON C. OGG