Bearish on Airlines (XAL Index)

[YIELDSAFE]

I believe the XAL Index (Airline Index) will decline at least 5% from its recent high of 61.74 on 1/4/07 within the next 4 weeks.

Based on my system, the sentiment and valuation of the XAL Index hit extremes on 1/4/07. Correspondingly, I have taken a short position in IYT at 83.24 on 1/5/07. Given the lack of pure plays on the XAL Index other than the XAL options and underlying stocks, I chose IYT as my vehicle of choice.

Short position: IYT
Entry Price: 83.24
Stoploss: 91.56
Time Stop: 4 weeks
Exit: Pending system signal

[F1sh7]

A simple overlay of the XAL vs the ITA and the IYT daily charts settles any doubt. If you do that overlay over the last year it clearly shows that the ITA has a better correlation to the XAL than does the IYT.

[nodoodahs]

ITA has a focus on defence stocks. The $xal is airlines, not aerospace & defense. I haven't tested which ETF, the IYT or ITA, has better correlation, but I would assume that Yieldsafe has.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[F1sh7]

The XAL just broke out to new 2+ year highs yesterday.

The slide is crude along with their coming back into profitability and the M&A activity all helping to boost the XAL.

The ITA (Dow Jones US Aerospace ETF) is a closer reflection of the XAL than is the IYT, and, it, too, is at new highs.

Why pick the IYT when you have the ITA as a trading product for the XAL?

[nodoodahs]

Interesting in that it is one of the few sectors showing relative strength this week ...
_________________
I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.