Airline recovery? Perhaps, but danger still looms in the skies.

Taking a look at the daily chart of the AMEX Airline Index (AMEX: XAL), we see that that airlines have really fallen out of bed over the past two and a half months. Plagued by worries about plane safety and bankruptcy, investors have clearly fled from the stocks. However, on Friday, the XAL attempted to push a new low, but failed to do so. Now, contrarians are likely eyeing the index and select stocks for a possible rebound.

The reversal argument is appealing, when considering the index is trading 37% below the 200-DMA, while having also just held the relative range low. However, should the index take out the 2008 low at 23.48, traders may want to look for another large leg down.

Exit is everything.

Mark Whistler

4/14/08