An Oddity in the Airlines Today

Sep 8, 2008: 2:11 PM CST

If you don’t trade airline shares today, you may have missed this interesting intraday development that occurred around lunch time.

The Chicago Sun Times reports the story “United Airlines Shares Plunge on False Bankruptcy Report.”

Apparently, the Florida Sun Sentinel website posted an article dated 6 years ago and simply (erroneously) changed the date to the present, which reported that UA was declaring bankruptcy.  An investigation has been launched to determine if there was intentional wrong-doing.  The story referred to the company’s 2002 bankruptcy (UA exited bankruptcy in 2006).

According to the Chicago Sun Times article:

“UAL shares dropped to 1 cent from $12.45 when the rumor first surfaced. The shares dropped suddenly just before 10 a.m. The Nasdaq stock market halted trading until United could address the rumors. After trading resumed about 11:30 a.m., the shares jumped $11.50.”

Let’s see what happened on the chart:

United Airlines (UAUA) Daily Chart:

The action likely executed any stop-loss orders placed properly beneath the 20 or 50 period daily EMA from traders trying to capture a reversal up in these stocks.  Although most of the time, such long bars (candle wicks) are deemed “erroneous” or ‘false tick’ or something of the sort, this time it is a real bar and will permeate the chart of this and other airline companies for a time to come.

I did want to highlight a couple of chart points prior to today’s surprise and mistaken action.

Notice that as price continued to make new price lows into July, the momentum oscillator actually made higher lows, indicating a developing (and multi-swing) positive momentum divergence prior to the price reversal to the upside – this is a good example of this concept.

Also, shares of other airline stocks show similar (but not as extreme) price patterns in sympathy with United Airlines.

View the daily (and intraday) stock charts of Delta Airlines (DAL), Northwest Airlines (NWA), Southwest Airlines (LUV), Continental (CAL), Jet Blue Airways (JBLU) and others.  Jet Blue’s intraday chart is particularly interesting.

This is an example of how news (true or false) can destroy any perfect price pattern or trade set-up you find on the charts and reminds us why it can be better to diversify money into multiple trade set-ups instead of trying to hit a homerun on a single stock set-up intraday – you never know when this will happen.

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