Oil, Airlines and Housing: Charts to Watch


Stocks have bounced sharply this week, but oil continues to slide.

Crude oil futures (@CL) closed at their lowest level in more than four months yesterday. The move follows a post on Market Insights last month that highlighted growing inventories and weak price action in the sector.

However, two other charts with a slight connection to oil are rising. First, the ARCA Airline Index ($XAL) had its biggest gain yesterday since January. Most clients know that airlines tend to move in the opposite direction of energy because of their exposure to fuel costs.

Arca Airline Index showing historic daily changes.

Aside from that obvious positive, several companies in the space have reported bullish news. American Airlines (AAL) beat estimates and issued strong guidance on October 25. Similar headlines came from Delta Air Lines (DAL) on October 11 and United Continental (UAL) on October 16.

Finally, what’s the link between housing and oil? The answer could be interest rates. TradeStation’s historical data shows that 10-year Treasury yields ($TNX.X) tend to fall when black gold slips. After all, cheaper oil means less inflation.

Traders may also remember that the iShares Home Construction ETF (ITB) broke down from a bearish triangle at exactly the same time bond yields started flying in September. But now that ITB’s holding a support line at roughly $29.50, the pain of higher mortgage rates may be priced in.

iShares US Home Construction ETF (ITB), weekly chart, with levels and volume.

It could make sense to keep an eye on those homebuilder stocks, especially after Lennar (LEN) and PulteGroup (PGM) reported strong results last month.

In conclusion, this isn’t a trade recommendation and everyone needs to do their own homework. We just wanted to highlight a few parts of the market you may not have checked in a while.

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.