Crude Drops, Airlines Rocket Higher, DAL Jumps 14% Friday

Saturday, December 12, 2009

Crude oil broke down out of its high-level price consolidation dropping 8% for the week. The price of oil could no longer hold up after several weeks of greater-than-expected supply shown in the Department of Energy's weekly inventory data. Crude actually showed a small draw this week but the large increase in distillates inventory overshadowed this data point. A continued bounce in the dollar gaining 1% for the week also took its toll on all dollar-priced commodities acting as the final straw to break the back of oil prices. I was stopped out of my long DBO position for an 8% loss as crude fell back below $70 per barrel. The technical picture looked decent on this trade for a momentum move to the upside but fundamental support never materialized to fuel a breakout after I entered.

The airlines jumped on Friday after crude oil prices broke the psychological $70 level confirming the breakdown in the commodity. Other news out of some key airlines shows that the survivors in the industry are attempting joint ventures and closer coordination on flights to increase efficiency. This could be a great sign of a slowing in the ruinous competition seen in the last decade. My note on Delta Air Lines on Tuesday appears well-timed as DAL jumped 14% for the day and added another 4% after hours. A huge uptick in daily volume confirms significant buying interest. Granted, DAL is in the midst of a strong momentum move and my note came after a 20% move higher in the preceding 2 weeks. Also, my arguments on the airlines are intended for use in a long-term, fundamental investment and not in a 1-week trade. Yet, starting off with an 18% cushion on an investment is always nice.


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