ETF Edge

Buyers appear to be 'calling the bottom' in the JETS airline ETF, market analyst says


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The group fell sharply Monday after billionaire investor Warren Buffett revealed that Berkshire Hathaway had sold its full stakes in shares of American Airlines, Delta, Southwest and United. The U.S. Global Jets ETF (JETS) closed down more than 4%.

But a pattern that has emerged in the JETS ETF in recent weeks could bode well for the group, Dave Nadig, chief investment officer and director of research at ETF Trends, said Monday on CNBC"s "ETF Edge."

Over the last month and a half or so, JETS has seen a rise in its shares outstanding, meaning investors — individual or professional — are buying in, whether to hold the shares for the long term or use them to short, or bet against, the ETF.

"What we've seen is a pattern of consistent $20-$30 million flows day after day, which is really not consistent with a big rise in shares being shorted," Nadig said.

He acknowledged that the number of JETS shares that are being shorted has risen, "but nowhere near as much" as the money coming in from buy-and-hold investors.

"In this case, I think what we're actually seeing is a lot of people trying to call the bottom," Nadig said. "Remember, JETS is down something like 56% over the last three months. It's ... one of the only ETFs affected that never caught a bounce. It's still trading very close to its March lows. So, I think a lot of people are hoping that there's a government bailout."

A further bailout for the airlines, who have seen a 95% decline in U.S. air travel from the coronavirus pandemic, could function like "the Fed put" is in the bond market, Nadig said.

"It's going to act as that buyer of last resort because there's no question these are beleaguered and beaten-up companies," he said.

Chris Hempstead, director of institutional business development at IndexIQ, agreed that people likely see the drop in JETS as an opportunity.

"When the price of an ETF or any security, really … drops to a very low number or something along those lines, we see day traders, if you will, jump in and start to trade millions and millions of shares," he said in the same "ETF Edge" interview.

The U.S. Oil Fund (USO) had a similar influx of buyers and bettors following the recent collapse in crude prices, Hempstead noted.

"With the airlines being so beat up, I think there's a lot of people out there, retail and probably some strategic investors — obviously not Warren Buffett — who might think there's an opportunity to get in here and take a shot," Hempstead said. "I don't think it would be my place to say that the airlines are out of the woods, but an ETF like JETS might give people that opportunity to go in, try to buy low and ride a rebound."