DOJ Probe Sends Airlines Sharply Lower

Airline stocks are spiraling this afternoon, after the Department of Justice (DoJ) said it has opened an antitrust investigation into a number of names in the sector. Although the DoJ is not specifying which carriers it is looking into, rumors are swirling the investigation involves a possible illegal pricing scheme. At last check, three airlines taking it to the chin are American Airlines Group Inc (NASDAQ:AAL), Delta Air Lines, Inc. (NYSE:DAL), and JetBlue Airways Corporation (NASDAQ:JBLU).

• AAL initially ticked higher out of the gate, but ran headlong into its 20-day moving average. Since then, the shares have plunged 2.4% to $38.96, extending their year-to-date deficit to 27%. Option traders have been hopeful that American Airlines Group Inc will stage a rebound, and have been buying to open calls over puts at a near-annual-high clip in recent weeks. Specifically, the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 6.00 sits just 2 percentage points from a 52-week peak. AAL could be poised for some additional turbulence, should any of these bullish bettors -- or upbeat analysts -- start changing their tune.


• DAL has been testing support atop its 320-day moving average in recent weeks, but due to today's 2.7% drop to $39.99, the stock has easily lost its footing atop this trendline. Longer term, the shares have surrendered roughly 19% in 2015, yet speculators have been initiating long calls over puts at a rapid-fire rate in recent weeks. In fact, the equity's 10-day ISE/CBOE/PHLX call/put volume ratio is docked at an annual high of 15.58. Meanwhile, the door is wide open for analysts to re-evaluate their ratings, which could translate into a fresh wave of selling pressure. All but one of the 13 brokerages covering the shares maintain a "buy" or better opinion, with not a single "sell" to be found. Plus, Delta Air Lines, Inc.'s consensus 12-month price target of $59.57 stands at a steep 49% premium to current trading levels.


• JBLU has performed the best of its peers. Not only was the equity up almost 31% year-to-date heading into today's session, but it hit an 11-year high of $22.40 as recently as May. What's more, although the stock is down 3.1% this afternoon at $20.11, it found a foothold atop its rising 80-day moving average earlier. Against this longer-term uptrend, short sellers have been jumping ship on JetBlue Airways Corporation, and in the most recent reporting period, short interest declined 10.3%. Elsewhere, short-term traders are more put-skewed than usual, per the security's Schaeffer's put/call open interest ratio (SOIR) of 0.48, which ranks in the 67th percentile of its annual range.