As Sinatra Would Say “Come Fly with Me …” (by Leaf_West)

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LA_10 I posted some charts in my free Live Chat Room on Friday morning just after 11am eastern when I went long UAL.  It turned out to be my best trade of the day as I added and sold in almost text book fashion.  I thought I would elaborate on this trade as an educational lesson and look more at the sector in case there is more opportunity here.

Original Post:

UAL_March18, 2011_Weekly

UAL_March18, 2011_Daily

UAL_March18, 2011_5min

I chatted that I had traded UAL long recently when it had hit oversold levels and that I thought that it was in that "zone" again.  The 5-min wedge to me was a great pattern, and the start of a potentially new trend trade higher.


Triangle – First Waves/Thrust:

I didn't post it on Friday morning but when traders see a break of a 15-min down trend, with a triangle first move/wave, they should try to get involved as these are high probability trades.

UAL_March18, 2011_15min


Diary of the Trade:

Patterns can fail for a variety of reasons, not to mention a nuclear meltdown or Gaddafi-driven headline.  So I advise people to stay disciplined even when looking at a normally high -percentage trade.

At 11:14am eastern, I chatted that I bought an initial position in UAL at $22.85 while it was still in this triangle pattern as I was anticipating the upward break-out.  That is what aggressive traders usually do … anticipate the triggering event … I usually prefer to wait for that trigger before entering the trade, but again this to me was a very high percentage trade.

I chatted " the $23.03 opening price is right above the 200sma on the 5min ($22.99) and right near a pivot price at $23.06 … that is the area to clear"  Here again is that 5-min chart with these levels highlighted for you …

UAL_March18, 2011_5min_Revised01

Again I was stepping out of character and anticipating a break higher and had an order set to buy additional shares on the hitting of the $23.01 level … again, not completely clear of that confluence area.

I chatted at 11:38am eastern that I had been triggered with my 2nd purchase …

UAL_March18, 2011_3min

At 11:44am I chatted  … " UAL now has to close a 5min candle above the HOD for me to add more … $23.10"  Well that happened with the 12:50pm candle, and I bought my final tranche of UAL shares here with a weighted average of just over $23.17.

Now I want to make a point here for traders …. look at all the price action leading up to this point in time … look how price was creeping higher testing that upper price resistance all day up until this point.  The 20EMA 5-min equivalent is the orange line on this chart … price respected that level perfectly earlier Friday morning and was not even interested in testing it any more by the time we made it to the HOD $23.10 level.  This is where traders need to press …. when that horizontal line gets broken for good, you should be prepared and willing to get big in size as it has done everything that a high % trade needs to do.

Now that UAL had broken a horizontal resistance line, price should not really get back below it unless the trade is going to fail … with all of the headline risk and the size of my position I hard wired a stop in below that horizontal line … I chatted at 12:54pm …  "I'm going to hard wire a stop on UAL at $23.05 to lock in a profitable trade for this Friday afternoon.  I will follow the stop higher as we go forward and higher hopefully."

12:58pm …. "$23.15 now on UAL"

1:03pm … "UAL stop now at 20c"

1:05pm … "UAL stop now at $23.25 …. LOL … I've got 10k shares … starting to sell back down to 5k here > 30c"

1:07pm … "back to 5k on UAL … not going any higher (on my stop) and will keep stop at 25c for the remainder of the afternoon"

1:20pm … "My strategy on my last piece of UAL is totally sell at 45c and total stop at 25c.  Not keen on holding over weekend"

1:25pm … "Down to 2k on the UAL"

1:27pm … "UAL triangle pattern target was 61.8% – $23.39 and 100% – $23.59.  yest's HOD was $23.38.

1:28pm … "That is why I lightened up … stop still at 25c on the last 2k"

1:32pm … "Filled on my UAL at 45c … totally out now"

That was it … only in this trade for a couple of hours and my total profit was just over $2800.

Here is the measured move of the triangle pattern that I chatted about but never posted in the chat room …

UAL_March18, 2011_3min_Triangle

Notice after the top of today's move, price corrected back to the area of the triangle break-out.  That is a pretty normal occurrence … I think depending on the headlines over the weekend, UAL and possibly other airline stocks will give us good trades next week


$XAL – Amex Airline Index:

Here is a snap shot of the AMEX Airline Index …

AMEX Airline Index_March18, 2011_Daily

Here is the daily relative strength chart for the Airline Index …

AMEX Airline Index_March18, 2011_SPY Relative

Before we get all excited lets take a longer term look at the returns from this sector …

AMEX Airline Index_March18, 2011_SPY Relative Monthly

Relative returns have been terrible for a 10 year period begining in 1998.  Everyone I'm sure is familiar with the joke that the industry hasn't earned their cost of capital since the Wright Brothers took flight!!

I will finish this blog off with some of the more interesting charts from the 10 members of the AMEX Airline Index …













Japanese Impact on Airlines:

The nuclear and earthquake crises in Japan will cause a "major slowdown" for airlines in Japanese markets, and a rebound is unlikely before the second half of 2011, a leading airline industry trade group said on Friday.

The International Air Transport Association (IATA) said in a statement that with the $62.5 billion Japan market representing 6.5% of scheduled worldwide traffic and 10% of industry revenues, tough times are in store for airlines with the most exposure to Japan.

"A major slowdown in Japan is expected in the short-term.  And the fortunes of the industry will likely not improve until the effect of a reconstruction rebound is felt in the second half of the year," said Giovanni Bisignani, IATA's director general and chief executive, in a statement.

World airlines have reported lighter traffic into Japan — and heavier traffic out — since last week's earthquake and tsunami.  Fears of nuclear radiation from damage at the Fukushima nuclear power plant later fed health concerns.

For now, however, Japan's All Nippon Airways and Japan Airlines said there had been no schedule changes in their flights from Tokyo to overseas destinations. Delta Air Lines is completing more than 90% of scheduled flights, Chief Executive Richard Anderson said in a recorded staff message.   Delta runs more flights in Japan than any other U.S. carrier, and plans to temporarily halt daily flights from Tokyo's Haneda Airport to Detroit and Los Angeles beginning next week.

IATA said the most exposed international market to Japanese operations was China, where Japan accounts for 23% of its international revenues.   Taiwan and South Korea were almost equally exposed with 20% of their revenues related to Japanese operations, followed by Thailand (15%), the United States (12%), Hong Kong (11%) and Singapore (9%).

France was the most exposed European market at 7%, followed by Germany (6%) and Britain (3%). Earlier on Friday, Deutsche Lufthansa said a sharp rise in fuel costs could hurt its profit, although economic recovery should boost the airline's revenues and operating profit this year and next.

Japan produces 3-4% of global jet fuel supply, some of which is exported to Asia, IATA said. "Some of this refinery capacity has been lost due to damages caused by the earthquake," it said.  "This supply restriction could lead to higher jet fuel prices."

Other U.S. airlines that fly to Japan — United Continental and AMR Corp's American Airlines — said they were flying their normal schedules.  "Obviously, loads out of Japan are higher than loads going in, but the majority of our travelers are flying as originally scheduled," said AMR spokesman Tim Smith.

Cheers … Leaf_West

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