Airlines have issued a warning on demand.
JetBlue, Southwest, United and American Airlines cut their outlook on Thursday, a response to rising delta variant cases that have dampened demand. This is the latest obstacle in a bumpy recovery of an industry hard hit by the pandemic.
But their stocks shook off that warning to rally. The JETS ETF rose nearly 2% on Thursday, adding to a 44% rebound since last September's lows.
Matt Maley, chief market strategist at Miller Tabak, said the day's move was likely a kneejerk 'buy the news' reaction. He cautions there is still a lot of uncertainty surrounding these stocks' next move.
"The line of least resistance I think is lower," Maley told CNBC's "Trading Nation" on Thursday. "You look at a stock like JetBlue, the stock is down 30% so you think, 'Oh my gosh, that must be a great buying opportunity,' but it's still more than 100% higher than it was from the lows back in 2020."
Maley does not see airline stocks returning to last year's lows, but warns that a retest of their summer troughs would signal more downside ahead. He said JetBlue and several other airlines, for example, have formed a double bottom, and any break below that would wave a technical red flag.
"They've got a lot more rough seas to go through, and I think they will present an unbelievably great buying opportunity at some point, maybe at the end of the year or early next year, but I think it will come on lower levels," he said.
In the same interview, Tocqueville Asset Management portfolio manager John Petrides said visibility is still too clouded for him to jump into the airlines.
"Investing in the airlines is like investing in a box of chocolates — in the short term, you really never know what you're going to get," Petrides said. "If you're going to play this space, you have to really have a strong stomach because the volatility is always high."
While the pandemic has been the biggest headwind to the group, Petrides said it's not the only one.
"In a potentially rising interest rate world with higher gasoline prices in a capital-intensive business, how are these industries going to perform if Covid is stretched out?" asked Petrides. "I'm more inclined to stay on the sidelines."