Plunging oil prices are dragging down the stock market!
That’s what some think, anyway. But that only tells half the story. And today, you’re going to see how you can ride the cheap oil trend for some steep profits over the next few months.
Here’s what’s happening:
Since late June the Dow Jones Industrial Average and oil have traded in the same direction 72% of the time, CNBC’s Brian Sullivan says. These two lines haven’t diverged since July 21st. So when oil goes down, it taking the Dow right along with it. 72% of the time, at least.
Sully calls this stat “boring but important”—and I’m inclined to agree. Kinda like gravity. But most folks are too freaked out that Apple is down more than 3% and breaking below support to notice the trend.
So let’s see what happens when we throw another group of stocks into the mix…
Different story. While tumbling oil has dragged the industrials down the basement steps with it, transportation stocks are spreading their wings on the prospect of cheaper fuel. They’d been badly lagging the DJIA for most of the year, off about 8%. But they finally made their move last week.
And after last week’s “catch-up” performance, the transports have taken command, up a solid 4% compared to Papa Dow’s loss of about a quarter of a percent.
I urged you last week to hop on the transports as they broke out of their 2015 funk. And in just five days the group made a miraculous comeback that signaled what could become a major change in trend for these ragamuffin stocks.
Yes, it looks like the prospect of cheap oil prices have finally impacted these stocks. And one of the main drivers of this trend? The airline sector. Take a look for yourself:
As transports have floated higher, the airlines have risen dramatically, up nearly 11% since July 1st. Thanks in large part to lower fuel costs creeping into earnings reports…
Virgin America is the perfect example of an airline stock gone haywire. Shares are up 25% over the past 10 trading days. And it helped that late last week VA reported—you guessed it—plenty of fuel savings during the second quarter. That helped earnings handily beat analyst estimates.
And keep in mind, we’re talking about a stock no one wanted to touch all year. Ever since the initial spike shortly after its 2014 IPO, VA has been dead money walking—until now.
So is this the spark to get airlines flying high once again? I think so, my friend. Cheap oil prices are finally making their impact on the airlines. And it could last a while.
Just make sure you catch this flight…
Courtesy: Greg Guenthner for The Daily Reckoning
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