It’s hard to ignore certain market moves that tend to be very rare. Bullish outside days that engulf the prior period are one of those. I think this is exactly what we saw this week in the AMEX Airline Index and it is something we want to respect. This is especially the case if you consider where this bullish reversal took place, just below important support.
Here is the Chart of the AMEX Airline Index opening up at a new low on Wednesday, but then rallying throughout the day to engulf the real bodies of the prior 5 periods:
AMEX Airline Index $XAL
Why does this matter? Well, on Tuesday Airlines broke down below support from February that had been resistance in November. So this is evidence of strong demand where it really needed to show up. The sellers had their chance and they could not take advantage. I would consider this a bullish characteristic for sure.
Here is a longer-term version of this chart so you can see just how important this $108 area really is. This index put in an important top near this level in early 2015, well before the S&P500 made its peak 4 months later. Notice how this index also bottomed in January, the month before the S&P500. We look at at the Airline Index (and Transportation stocks) as a leader:
AMEX Airline Index $XAL
I think if $XAL is above 108, we can be long Airlines. From a risk vs reward standpoint, it is certainly skewed in favor of the bulls here. From a probability standpoint, the failed breakdown this week and momentum holding up very well in a strong bullish range, favors the bulls for sure. Also See $JETS
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