Alaska Air Group - Anatomy of a Bubble

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Alaska Air Group             displays clear characteristics of a bubble, more precisely of a bubble preparing to burst. On the wings of a 6 year old bull market and more recently fueled by cheap oil             prices this stock was propelled from 2.53$ in 2008 to 82.78$. The stock rose more then 30x from the low or as Peter Lynch would say, for those that bought it at those prices it became a "30 bagger". With the whole stock market weakening recently and especially the transports coupled with what I think is a bottoming process in crude oil             I feel that Alaska Air is slowly losing the air beneath is wings.

The technical picture adds weight to this assessment with a daily and weekly RSI divergence (displayed on the chart on the right) plus I think ALK's chart is eerily similar to gold's chart in September 2011. Therefore it is likely that the future development of the chart is going to be similar.

I suggest shorting the stock with a weekly stop above 83$. The target is the 40-45 area with partial profit taking around the 60$ area. You may also try and buy a couple of out-of-the-money put options and see if you can catch a potential sharp move down and profit from the tail risk. Be careful though, earnings are on 10/22 so keep your position small and set your stop wide enough so you can weather the volatility .

Whoever chooses to go with the trade good luck.

For a full list of instruments traded in the lifetime of the portfolio and for performance go to the Performance section: http://www.highprotrading.com/performance/
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