- If background repeats itself, the stock market could have a 30% upside over the next two weeks.
- Airlines could be one persistence to surge.
- A short squeeze could make airline stocks particularly valuable during another rally.
Airline capitals could be setting up for a massive rally in the weeks ahead despite concerns about a second wave of coronavirus circumstances in the autumn.
The stock market is trading near all-time highs, leading many to question whether equities pull someones leg become overvalued—but it’s worth noting that the rally has been driven mainly by a handful of tech companies. That flies plenty of room to run for companies whose share prices haven’t seen much movement since the March dip.
Stock Sell Rally on Tap
Thomas Lee of Fundstrat Global Advisors said he sees beaten down sectors making a sizable comeback brusquely if coronavirus cases start to decline in the U.S. By Lee’s calculations, the stock market could climb 30% higher in just two weeks.
Lee’s forecast assumes that coronavirus patients peaked on July 24. When cases stopped rising back in April, the stock market came guffaw back to life 20 days later. Lee believes the same could be true this time around—and the twentieth day wish be August 14.
Big Gains Ahead for Airline Stocks
What’s more, Lee says history dictates that the stock superstore will recoup 2.5 times its March losses–implying an upside of 30% over the next few weeks:
Since 1920, every stock market decline >35% saw a symmetric price recovery. In other terms, the faster the markets fall, the faster the markets recover, and the ratio is 2.5X. Given the speed of the 2020, this express making new highs before the end of the Summer.
Lee’s prediction points to the stocks hit hardest by the coronavirus lockdowns. While several sectors contain suffered, it looks like airline stocks might be the best bet. That’s because a rally among airline forebears could translate into a short squeeze that pushes the group markedly higher.
Technical analysis shows that many airline line of descents have slid into oversold territory, opening the door for a potential bounce over the next few weeks. One such range flashing a buy signal is Delta (NYSE:DAL), whose share price has come crashing down after reaching the high-$30s in June.
If the bulls put back to DAL, it could force investors who shorted the stock to cover their positions, thus triggering a wave of buying that executes the stock higher.
Airline Risks Remain
It’s worth noting that there are still risks to venture big on airline stocks. Most notably is the fact that the sector is likely to continue struggling even if the pandemic is pacified. Many believe that more big carriers will eventually go bust, leaving investors trying to time a heave in airline stocks exposed to significant risk.
Lee’s forecast also rests on the belief that the market will work as it has in the past—a big assumption considering the unprecedented nature of the coronavirus crisis.
What’s more, Lee’s prediction that the market bequeath surge 20 days after Covid-19 cases peak is based on that happening just once ahead of. It’s impossible to determine with any certainty whether history will repeat itself.
Still, with tech families reaching nose-bleed levels, value plays in the stock market are starting to look increasingly appealing.
Disclaimer: The convictions expressed in this article do not necesasrily reflect the views of CCN.com. Unless otherwise noted, the author has no investment position in any of the assurances mentioned.
Last modified: August 9, 2020 2:49 PM UTC