It is a good idea at times to hedge transportation stocks with crude stocks. If you want to find stocks to short sell when the oil rallies, look no further than the airlines sector. Stocks like Alaska Air Group (NYSE:ALK)
could be a primary candidate. This $2 billion company recently fell through its 50 day moving average of $60.91 after finding resistance three times in a row in mid-January, mid-February and a week ago at $64 range.
However, I cannot deny the stocks strength even throughout the oil rally as it used its moving averages to make higher highs for the past five months. After falling through its 50 day moving average at the beginning of March, the stock quickly rose above $60.56 to trade tightly above its MA. the stock could potentially sell off if it fails to remain above its 50 MA.
Another name that is showing weakness is SkyWest (NASDAQ:SKYW)
with a similar charting pattern as Alaska Air Group. This is a perfect short set up as the stock reversed from touching two of its resistance points of $17 on March 7th and March 28th. Stock had a nice rally from beginning of February, rising from $15 a share to $17 a share before the bearish double top chart pattern began to do its magic.
I would use extreme caution shorting the stock as the company has a healthy return on equity of 6.9% that compares to relative valued companies such as JetBlue (NASDAQ:JBLU)
and Southwest (NYSE:LUV)
with return on equities of 6.1% and 7.9% respecitvely.
Depending on the strategy used, it is never a good idea to short stocks with decent balance sheets and solid fundamentals, especially if you don't have your stop losses in order or you are not glued to your computer throughout the day. a sudden drop in oil prices or a rear rally in the airlines industry or even a short squeeze can have a severe damage to your portfolio.