Air Canada has an inverse relationship to energy

Apr 6th, 2011 – Comment

At this point it looks like AC.B will have to retest support at $2.00.


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Hi there,

I have a question about Air Canada – do you see a bottom for this downward slide anywhere soon? Going by the numbers it looks so undervalued to me…

Jocelyn, Vancouver BC

 

Hi Jocelyn,

I last posted regarding  Air Canada ( AC.B TSX) on September 27, 2010 from a request by Wayne. At the time a number of points were made. The first thing was that the stock was in an uptrend and could run to $4.00 without much resistance from the $2.86 it traded for on that day. Another factor that was discussed was the period of seasonal strength that transportation stocks enjoy from September to November.

 When we look at the charts its as if the market was reading from a script. The stock ran to $4.00 and reversed the uptrend as we got into November. Hard to complain about a 39.8% return in five weeks. Lets do some work and see if we can surface more value.

The three year chart illustrates the move to $4.00 and the trend reversal at the beginning of November 2010. The RSI indicated that the stock was overbought and we also got a signal from the MACD that momentum was shifting from buying to selling.

The six month chart tells the tale of the tape of a sell off that has chewed up just over 42% of value from the November high. The RSI and MACD both clearly generated sell signals in November of 2010. If you are looking for a bottom on the stock remember that you want to confirm the bottom not anticipate it. The best time to buy a stock is when its going up, not when it is going down!

At this point it looks like AC.B will have to retest support at $2.00. Another thing to keep in mind is that airline stocks tend to have an inverse relationship to the price of oil. Since November of 2010 oil has moved from $80 a barrel to $108.00 a barrel. Jet fuel is the second largest expense for airlines after staff so as costs go up the price of the stocks go down.

Happy Capitalism!

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