Many investors are scared right now as it is time for Halloween soon, but Halloween is not the reason. It`s something worse; the stock market. S&P 500 and Nasdaq had their worst weeks since May 2012, but I don`t think it is a big surprise for someone in the market as this is highly expected.
Russel 2000 is in a correction territory and DJIA has dropped down about 200 points in four days in a row, and that has not happened in years. Last time we saw volatility like this was in 2011. Equities are a scary thing for investors right now, and that is not because of the coming Halloween.
S&P 500 ended at around the 200 MA and that will be a very important level to watch for in the coming days/weeks. SPX declined 3,1% last week and are now trading 5,6% below its peak of 2019,26 a month ago.
Many sectors are starting to be oversold and this is a good opportunity for many to pick up stocks. Take a look at the oil price, which is declining every day now, trading below $90. The surplus for many in this oil sector is good, so they don`t complain with a price below $90, despite an break-even at $92.
Other sectors will benefit from the declining oil price. American Airlines will benefit from reduced fuel costs and the stock looks cheap. Fuel is the largest expense line for American Airlines and a decline in oil prices will have a huge impact to their bottom line.
On December last year, AMR Corp merged with U.S Airways. They are now the world`s largest airline; American Airlines Group (AAL). The shares doubled since they merged, but the stock have had a pullback which makes it interesting for investors as the fuel cost are making it more profitable.
AAL has delivered great results, have good cash flow levels and their revenue are increasing. They have high-capacity and a strong pricing power, and are expanding its network to China. Those routes is one of the most profitable routes worldwide and they will start to compete with Chinese airlines.
With around $10 billion in cash and possible buyback program, the earnings per share will increase to new highs. The forecast for earnings is $5,21 per share, and with a buyback program, this stock looks undervalued, and EPS would strengthen.
The stock slid -7,15% yesterday and looks cheaper and cheaper every day. Another airline stock to decline was United Continental Airlines (UAL), down 7,29% yesterday. The market trend indicator gave us a bearish reading on stocks and that`s for the first time in some time. If we fall below 1,800 on the S&P 500, the war will be over and the bears are the winners. What investors are doing now, is jumping from one sector to another.
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