Trading Nation

Oil and airlines are doing something very strange

Market mystery: Oil and airlines move together
Market mystery: Oil and airlines move together

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.