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Chart Advisor: Separating Lines

Investopedia

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Investopedia
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Monday, June 29, 2020

1.Stocks rally ahead of quarter’s end

2. Investors getting ready to fly

3. What fuels the hope

Market Moves

Stock indexes rebounded from Friday’s sell-off and closed the day one percent or more higher. Though the selling was heavy last week, today’s action may suggest that such selling is not a harbinger of the second quarter. That’s because the price patterns evident in the leading sector today are quite bullish.

The chart below (click to see an enlarged version) displays State Street’s Industrial Sector index fund (XLI) and the three stocks within its top ten holdings that looked most bullish today. These include Boeing (BA), General Electric (GE) and CSX Corp (CSX). The price patterns over the last two days depict a candlestick pattern known as separating lines. The pattern is comparatively rare, but some studies suggest that in nearly two thirds of occurrences, stocks will reach a new high target after this pattern appears. It will be interesting to see whether this pattern signals a dissipation of fear over the state of the COVID-19 panic. Have investors absorbed the notion that more testing means more cases? Or is it something else?

Investors Getting Ready to Fly

Among airline stocks, Alaska Air Group (ALK), Southwest Airlines (LUV), and Spirit Airlines (SAVE) staged a bullish breakout from the falling wedge pattern they had been forming. This is one of the more bullish breakout signals, and it may suggest that investors feel both safe enough, and eager enough, to buy into these stocks which are still considered a value. These three stocks show the strongest signals, but the entire industry group appears to be drawing investors, as evidenced by the same pattern breakout showing up on U.S. Global’s industry group index ETF (JETS).

What Fuels the Hope

The one stock that intersects between the industrial sector and the airline industry group is Boeing (BA), featured in the chart below. Boeing’s favorable news about its upcoming MAX series tests gave airline stocks a beneficial association with the jet manufacturer. The move on BA shares today was so strong that it pushed both segments higher and formed an impressive breakout of its price pattern.

Though price pattern breakout signals are no guarantee that prices will reach new local highs, the odds are slightly in favor that the price will do so. It is therefore a useful signal for traders, but investors may need evidence for the longer term. Chart watchers will find it useful to note whether the BA price will continue to hold its breakout for the next two days.

The Bottom Line

Stocks took back enough of their lost ground on Friday to give pause to the concern that investors are in panic mode amid a new wave in the pandemic. Airline industry group stocks as well as industrial sector stocks did well. The highest capitalization stock in both groups, Boeing, fueled most of the growth today.

Originally Published on June 29, 2020

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