LUV and UAL stocks have recently found a foothold atop their 40-day moving averages
Weakness in the
tech and
energy sectors have translated into turbulence for the broader stock market, with both the S&P 500 Index (SPX) and Nasdaq Composite (COMP) in negative week-to-date territory. Pullbacks can often provide a buying opportunity, though, and if history is any guide, airline stocks
Southwest Airlines Co (NYSE:LUV) and
United Continental Holdings Inc (NYSE:UAL) could be headed to higher highs.
Southwest Airlines Shares Fresh Off-Record High
LUV stock has been barreling up the charts since skimming annual-low territory near $35.40 last August, adding 68%. More recently, the stock pulled back after hitting a record high of $61.24 on June 2, but found a foothold atop its 40-day moving average.
According to data from Schaeffer's Senior Quantitative Analyst Rocky White, in the nine other times this signal has flashed over the past three years, Southwest Airlines shares have gone on to average a 21-day gain of 4%, and have been positive 63% of the time. Based on LUV's current perch at $59.46 this would translate into a move up to $61.80 region.
Now appears to be an affordable time to bet on the stock's next leg higher with LUV options. Not only does the equity's 30-day at-the-money implied volatility of 22.1% rank lower than 95% of all comparable readings taken in the past year, but its Schaeffer's Volatility Index (SVI) of 23% arrives in the 7th annual percentile. In other words, low volatility expectations are being priced into LUV's near-term options, a potential boon to premium buyers.
United Continental Options are Cheap Right Now
UAL shares have put in strong performance over the last 12 months, up 78%. The stock snagged a record high of $83.04 on June 2, as well, but was last seen trading at $76.56. Nevertheless, United stock was quickly contained by its rising 40-day moving average.
This could signal more gains for the stock, considering in the seven most recent times UAL has pulled back to this trendline, it's gone on to average a one-month gain of 4%, and has been higher a whopping 71% of the time.
Those looking for UAL stock to resume its longer-term uptrend can purchase short-term options at a relative bargain, per its SVI of 32% -- in the low 23rd annual percentile. Plus, United Continental's Schaeffer's Volatility Scorecard (SVS) is docked at 82, meaning the stock has tended to make bigger moves than what the options market has priced in.