Buy Delta once travel demand normalizes, trader says

Airline stocks are taking off again on a rush of hopeful news.

The JETS global airlines ETF rallied more than 5% to begin the week after American Airlines announced use of a new disinfectant approved by the Environmental Protection Agency and Delta said it has plans to restart 50 international flights this winter.

Despite the moves, Strategic Wealth Partners President Mark Tepper is still avoiding the space.

“I don’t own any airline stocks right now. I just quite frankly don’t have the stomach to trade those day in and day out, but number one thing on my radar that I’m watching is the TSA ‘throughput’ traffic numbers,” Tepper told CNBC’s “Trading Nation” on Monday.

The Transportation Security Administration says the number of travelers passing through airport checkpoints fell 74% in July compared with last year. Tepper would consider air travel to have “normalized” once that drop narrows to a 25% year-over-year decline. 

“Now, my favorite airline which would be my buy when things normalize is Delta and they’re just simply the best — best management team, best maintenance team — which improves their margins. And their partnership with American Express is the gold standard for any of these rewards programs. It literally drops money straight to the bottom line,” said Tepper.

Delta has rebounded 70% since May lows. It remains 52% below January highs.

Ari Wald, head of technical analysis at Oppenheimer, says it’s hard to bet against the airlines given their large swing higher. However, he’s not ready to back any. 

One name he says could be used for a short-term trade on upward momentum is Southwest Airlines. 

“This isn’t a recommendation to buy Southwest Airlines, but I will set up the trade for those interested. It has stabilized and is trying to base out since its March bottom. You see counter-trend strength into I believe $42, which is resistance at its 200-day average, as long as support at its 50-day [average] is upheld. That’s at $33, so that’s your stop level,” Wald said during the same “Trading Nation” segment. 

Southwest rallied more than 6% on Monday, closing the day at $36.91 a share. A move to $42 implies 14% upside. 

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