Oil and airlines are doing something very strange

There's a strange correlation happening between oil and airline stocks.

Over the last three months, the NYSE Arca Airline Index — the XAL — and the price of crude have been moving in tandem. The two typically trade inversely as higher oil is typically bad for the group and vice versa.

"I think one of the things that the market was telling us earlier this year, as we had oil in the upper $20s, was that the markets and the economy in the U.S. is a lot more concerned with oil and gas companies going out of business," Jacob Weinig, founding partner at Malachite Capital Management, said Wednesday on CNBC's "Trading Nation," citing stronger economic growth since the beginning of the year.

As those tensions have eased and the economy has strengthened, Weinig said, people have started to travel more, particularly as fears of Zika have eased since the end of the summer. He does not see oil near $50 per barrel as a major headwind for airline stocks right now, though does foresee trouble if crude heads for $60 or higher.

The equity market has recovered from its lows earlier this year, said William Baruch, chief market strategist at iiTrader, and has moved, to some degree, along with oil.

"We all know the market and oil both started the year off very poorly; it bottomed out through January and February. And from here, we saw an inflow into ETFs, an inflow into equities, an inflow into oil in the market recovery," Baruch said Wednesday on "Trading Nation."

Baruch called these risk-on trades.

"So I do think this correlation, which has increased throughout the year, is something that can, for the next year or two, really stay in place," Baruch added, "even if oil stays here above $50 and goes higher."

The XAL is up 9 percent this year while oil has rallied nearly 35 percent.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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