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Could airline stocks bounce back?
The group fell sharply on Monday after billionaire investor Warren Buffett revealed that Berkshire Hathaway had sold its entire stakes in shares of American Airlines, Delta, Southwest and United. The US ETF USA Global Jets (JETS) closed more than 4%.
But a pattern that has emerged on the ETF JETS in recent weeks could bode well for the group, Dave Nadig, chief investment officer and chief research officer at ETF Trends, said on CNBC’s “ETF Edge” on Monday.
Over the past month and a half or so, JETS has seen an increase in its outstanding shares, which means that investors, individual or professional, are buying, either to hold the shares long-term or use them short or bet against, The ETF.
“What we have seen is a pattern of constant flows of $ 20- $ 30 million day after day, which is not really consistent with a large increase in short stocks,” Nadig said.
He acknowledged that the number of JETS shares that are short has risen, “but far from it” as the money from buy and hold investors.
“In this case, I think what we are really seeing is that a lot of people are trying to get to the bottom,” Nadig said. Remember, JETS is down 56% in the past three months. It is … one of the only affected ETFs that has never recovered. It continues to operate very close to its March lows. So I think a lot of people expect there to be a government bailout. “
Nadig said a new bailout for the airlines could work as “the Fed put” in the bond market.
“It will act as that buyer of last resort because there is no doubt that these are besieged and abused companies,” he said.
Chris Hempstead, director of institutional business development for IndexIQ, agreed that people are likely to see the JETS crash as an opportunity.
“When the price of an ETF or any security actually … drops to a very low number or something like that, we see daily traders, if they want to, jump in and start trading millions upon millions of shares,” said in the same interview “ETF Edge”.
The US Petroleum Fund USA (USO) had a similar influx of buyers and gamblers following the recent collapse in crude prices, Hempstead said.
“With the airlines so badly beaten, I think there are a lot of people, retailers and probably some strategic investors, obviously not Warren Buffett, who might think that there is an opportunity to come in here and take a chance,” Hempstead said. “I don’t think it’s my place to say that the airlines are out of the woods, but an ETF like JETS could give people a chance to go in, try to buy low and take advantage of a rebound.”
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