Saturday, October 25, 2008

Time to Short Airlines as OPEC Cuts Crude Output

I’ve been watching in bewilderment at how much airline stocks such as UAUA, AMR, DAL, LCC, and RJET have have rallied without any real profit taking to set in yet. I shorted RJET a few times mostly for profits as I’m looking to catch this on the down side once people start taking there profits. And it's not a matter of if this will happen, it's when. With every huge sector rally, there's always a point when it peaks and retraces a significant amount before it continues going up, levels, or continues to fall.

OPEC scheduled an emergency meeting for Friday, October 24th, and is expected to cut crude oil output by an unknown amount. Demand for oil has been on the decline which has led to oil dropping around 55% from its peak near 150. Falling oil prices has meant increased profits for airlines, which is why the airline sector has been skyrocketing. Yet with rumors of the OPEC cut, hugely overbought conditions, and airline stocks losing momentum, this seems like it could be the beginning of a good time to catch airline stocks on a downside move, at least in the short term.

I’ve been trying to go short in several of them, yet shares have been hard to borrow. I managed to borrow some shares of RJET at 12.43 on Wednesday and alerted Black Service Members to go short. UAUA was also another very appealing airline stock and fell as far as 20% Thursday during the session, yet I wasn’t able to get any shares to short.

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