Picking Up Some Republic Airway Holdings Inc. (RJET)

This week, I look at an airline. Wait. Let me take a deep breath. Yes, an airline. Look, investing in airlines is the Wall Street version of Seppuku, but no one ever said you couldn't trade them.

Valuation

RJET fell off a cliff recently. I do like the way it fell so far so fast. The faster it falls in the face of good valuation, then the more impetus you have of seeing a snap-back rally. Again, I only invest for 3 months, so I'm looking for, at minimum, a short-term bounce, one that is already in play. Let's take a look at this juicy valuation.

First, you'll see that the PEG Ratio is .56, well below the maximum of 1 which I will tolerate, and less than half the industry. Quarterly revenue growth is lagging the industry, which could be concerning, but I focus more on the bottom line. The operating margins are better than twice the industry average. The price/earnings ratio is less than twice the industry.

Technical Analysis – Monthly

What makes this stock so appealing is the capitulation that happened last month, and the bounce back that now appears to be in place. Admittedly, the indicators that measure participation, specifically the accumulation/distribution line, looks horrible. However, when you have a volume spike on down volume the highest in 5 years in the face of horrible price action when the stock has been declining as far as it has, a short-term bounce could very well be in order, especially with a high short interest of 12% like the stock has and the awesome valuation compared to the industry. The industry has been exhibiting high relative strength compared to the broad market recently, incidentally.

Also positive here is the divergence of the relative strength line with the price action. Notice how as the price decreases, the RSI increases, as do the stochastics. I usually prefer a double signal from the stochastics, however, and I am only getting a single here. What I don't generally like is the price relative to the Wilshire 5,000. This stock has been significantly lagging the market, but again, the amount of capitulation (or sellers just losing their patience and panicking completely), is a very good sign that will likely reverse the trend, at least in the short term.

Technical Analysis – Weekly

Again, look at how nicely the Relative Strength Index diverges the price, showing the downward momentum has been weakening over time. You can also see 3 weeks of heavy selling action last month. Again, the stochastics have diverged, signifying a bottom was put in June. The Accumulation/Distribution line has been diverging from the price action for quite a while, showing that buyers have been coming in and picking up the stock as it goes down. And the most recent action in the A/D line just looks completely pathetic, signaling that potential capitulation last month.

Let's see how this one goes. I don't usually pick bottoms, but really if I were doing that, we'd be talking this past June. The momentum on this one really seems to be lightening up to the downside and the nice scare that investors got last month should be constructive for a bounce. Let's see how this looks in 90 days.