Trading Nation

After airline stocks' best week ever, technical analyst bets on another 25% rally

Trading Nation: Airlines rebound, here's where they could be headed
Trading Nation: Airlines rebound, here's where they could be headed

Airline stocks went sky high last week.

The JETS airline ETF, whose holdings include JetBlue and Southwest, rallied 33% in the past five sessions, closing out Friday with its best weekly gain on record. Airlines have rebounded as investors make bets on pent-up consumer demand. The ETF remains roughly 40% off 52-week highs.

Craig Johnson, chief market technician at Piper Sandler, sees even higher highs ahead for the group.

"Take a look at the chart of JETS," Johnson told CNBC's "Trading Nation" on Friday. "You've got a pretty clear downtrend reversal off of those February highs. You also made a very nice-looking base, and at this point in time, the [ETF] looks like it's poised to go back and retest its 200-day moving average, which would be around $25. So still nice upside left from here."

The JETS ETF closed Friday at $20.09. A move to $25 implies more than 24% upside. 

"The relative strength [momentum indicator] versus the S&P is improving, really providing confirmation here," said Johnson. "As we get more confirmation that there can be a vaccine and more evidence that that's coming, these airlines are going to further take off."

Chad Morganlander, portfolio manager at Washington Crossing Advisors, cautions investors not to get bullish on the airlines. 

"We believe airlines have a flawed business model. There are three issues. One, airlines run a lot of debt, they have too much debt on their balance sheet. Two, cash flow volatility is incredibly high, and three, they have high embedded infrastructure costs. So we would actually advise investors to look at other industrials," Morganlander said during the same segment. 

Two such stocks, in particular, look appealing to Morganlander.

"Look at General Dynamics or Raytheon Technologies: Both of these companies are consistently growing, consistently profitable, and they don't have a lot of debt on their balance sheet," Marganlander said. "Those we believe you could own for three to four years."

General Dyanmics and Raytheon also rallied in the past week, albeit not as strongly as airlines' moves. General Dynamics gained 10% and Raytheon went up 12%. 

Disclosure: Washington Crossing Advisors holds GD and RTX.