The airline stocks have likely seen their bull market highs, so I’ve added the JETS ETF to the list of touts. Because this trading vehicle came into existence in January, there’s not much price history. However, it will be possible for us to leg into ultra low-risk vertical put spreads once there are enough bars on the intraday charts to allow for predictions of short-term swings of perhaps 4%. Of course, we will also be able to short the stocks of individual carriers that look even worse than JETS.
The reason I am so sure the airlines have entered a bear market goes back to May 20, when the carriers’ shares dove on news that Southwest was increasing capacity by eight percent. In fact, this merely raised Southwest’s previously announced figure by a single percentage point. Why should carriers’ shares have plunged on such non-news? Answer: They shouldn’t have. There are obviously more serious troubles brewing, and attributing the selloff to Southwest’s boost in seats was just a McGuffin purposed to allow DaBoyz to distribute airline stocks to the rubes on stage-managed rallies.
The potential problems go well beyond competitive pressures from Southwest. Consider the following: 1) fuel prices bottomed in March, and additional savings from this source will be difficult to achieve; 2) fares are as high as they can go in these supposedly good economic times, and even a hint of recession will depress traffic and put significant downward pressure on ticket prices; 3) alienating customers is never good for the bottom line. They’ve come to despise the airlines — moreso, even, than TV cable companies — in part because passengers have been nickle-and-dimed to death. This has occurred even as amenities have all but vanished, planes have grown more crowded, legroom and seat widths have compressed savagely, and flight choices have dwindled; 4) because nearly all U.S. carriers stink to high heaven, this open the door to competition. Maybe one of them will start by answering their phones? Meanwhile, customers eager to see the airlines — and paper-shuffling airline-destroyers like William Franke — get their comeuppance will probably not have long to wait. _______ UPDATE (June 9, 8:07 p.m. EDT): The plunge begun on Monday projects to 21.11. In retrospect, a carefully measured short was not the way to have gotten aboard. _______ UPDATE (June 21, 4:00 p.m.): The options may be too illiquid to be useful. Let’s give it the old Army try anyway, bidding 0.90 for eight September 19 puts at the 23 strike. Leave the order in till the close on Wednesday and keep it there unless JETS trades above 23.25 or closes above 23.10.