Airline stocks are the most overbought they’ve been in years, chart analyst says as travel plays tumble

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Airline shares are probably the most overbought they have been in years, chart analyst Matt Maley mentioned Thursday.

Journey shares had been swept up by a broader market sell-off in Thursday’s buying and selling session, with airline, resort and cruise line names paring again after substantial year-to-date rallies.

The reversal might mark the beginning of a bigger setback, significantly for airline shares, Maley, who’s chief market strategist at Miller Tabak, informed CNBC’s “Buying and selling Nation” on Thursday.

Up greater than 180% from the March 2020 lows and 30% simply this month, the NYSE Arca Airline Index is “actually getting stretched right here,” Maley mentioned.

“It is getting probably the most overbought since 2016,” he mentioned, pointing to its relative power index chart.

Particular person shares reminiscent of JetBlue are additionally being overbought on a relative power foundation, Maley mentioned, including that the title is “getting as much as ranges the place it is seen pullbacks a number of occasions over the previous couple of years.”

Now, “you are beginning to hear extra considerations concerning the variants of the coronavirus which will lengthen this shutdown,” he mentioned. “If that takes place, then you definately’re actually going to see these shares come down even tougher. However both approach, they’re very overbought and I simply suppose you need to keep away from chasing them proper now and fairly look to purchase them if they arrive again. However I feel they’ll have to return again fairly a bit as a result of they’re simply so overbought on a technical foundation.”

The group is not void of alternative, nonetheless, longtime investor Nancy Tengler mentioned in the identical “Buying and selling Nation” interview.

Whereas Tengler suggested in opposition to chasing journey shares at their present ranges, she flagged three names more likely to profit from a journey and leisure resurgence, the primary being American Categorical.

“It is a firm that’s anticipating to get again to 70% of 2019 fourth-quarter revenues within the fourth quarter of this 12 months,” mentioned Tengler, chief funding officer at Laffer Tengler Investments.

Her second choose was shares of Disney, which is slowly reopening its theme parks to restricted, however still-strong demand, she mentioned.

“Then I might dip my toe into a reputation like Southwest Airways,” Tengler mentioned. “[It] has a superb steadiness sheet, they’re in a really sturdy place and they’re domestically targeted. And so, even with a rise in variants, I feel you are going to begin to see individuals who have been vaccinated begin to journey once more.”

Disclosure: Laffer Tengler Investments owns shares of American Categorical and Disney.

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