Zak mir on the Airlines Dive: easyJet, International Consolidated Airlines and Ryanair

The latest news regarding the hysterical security measures at UK airports – to allegedly prevent terrorist sabotage of flights to the US – seems to be the last in a long line of perfect storm events that have undermined the price action of leading UK airline stocks.

Apart from it being the summer / school holidays strike season (courtesy of the French Air Traffic Controllers’ action last month), we have also seen geopolitical events raise the price of crude oil and hit fuel prices for the likes of easyJet (EZJ), International Consolidated Airlines (IAG) and Ryanair (RYA). It also looks like it won’t be long until non functioning laptops and phones will be banned from planes on short haul flights as well.

In the meantime we have the charting challenge of whether the recent breakdown for the aforementioned stocks is a dip to buy into, or the end of the line for what has been an impressive bull run since as far back as the summer of 2012. Such an idea might also tie in with the notion that airline stocks could be a reflection of the state of the consumer, as well as a leading indicator on the stock market topping out.

easyJet (EZJ)

Taking the charting position of easyJet (EZJ) first and even as recently as the beginning of last month we were witnessing a cooling off, rather than a melting down, of shares in the no frills group. This was even after the extended topping out above 1,700p for the shares in H1 2014.

However, what we are now seeing for H2 2014 is a second unfilled gap to the downside, after the clean June break below the 200 day moving average at 1,530p. The expectation now for the rest of July is that at least while there is no end of day close back above the 1,325p gap top, further tests for support are expected. 

This is particularly the case given the way it is possible to draw a support line projection from July last year as low as 1,050p. This is the target for the stock as soon as the end of next month,  given the present rate of decline.

International Consolidated Airlines (IAG)

It would appear that at International Consolidated Airlines (IAG) we have a bona fide consolidation of an extended two year bull run until the second half of last month, with the persistent failure below the 200 day moving average, which is at 393p currently.

The problem now for the bulls is that the unfilled gap to the downside through the May 350p floor suggests that the shares have moved to ensure that traders buying the dip towards this level will most likely have been blown out of the water.

While there may be an initial dead cat bounce back towards the old May floor, the absence of an end of day close back above 350p would suggest that the floor of September’s gap at 315p will be visited before a sustained push to the upside can be seen.

Ryanair (RYA)

What can be said about Ryanair (RYA) is that the shares may be providing an opportunity  for those who missed the boat on the downside at both easyJet and International Consolidated. This is because, although there has just been a gap to the downside for shares, they are still close to their 200 day moving average, and a relatively large distance from the floor of a falling trend channel from February at €6.

On this basis the way forward here could be to assume new downside to the notional target over the next month,  below the 200 day moving average at €6.74. This is especially the case while there is no end of day close back above the 50 day moving average / 2014 resistance line, which is at €7.04 currently.

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