Airline stocks are close to 'max fear' — and it could be the best time to buy, trader says

Airline stocks could be nearing an attractive entry point.

The group has fallen sharply in the past three months, with Spirit Airlines, JetBlue Airways and Hawaiian Holdings down more than 20% and other top names not far behind.

The U.S. Global Jets ETF (JETS), a basket of 52 stocks in the air travel industry, is down nearly 13% in that time frame.

"Max fear" has proven to be a good time to buy into the airlines, MKM Partners' chief market technician JC O'Hara told CNBC's "Trading Nation" on Wednesday.

"I will not sugarcoat it: The technical setup for the airlines is pretty bad right here," he said, referencing a chart of JETS with arrows denoting past peaks in daily Covid-19 case counts.

"There is some support right around $21.50, but I think in this case, it's not support that matters. It's sentiment," O'Hara said.

JETS climbed by nearly 1.5% Thursday morning to around $22.56.

"When there is this max fear around the virus, that has offered a great entry point into the airlines," he said. "Sentiment is very hard to pinpoint in real time, but I'm feeling that we are getting closer to max fear, so I do think in the next days to weeks to come, we will see a very attractive entry into the airline space."

Airline stocks could feel the heat of new mask mandates over the next several weeks or month, said Steve Chiavarone, a portfolio manager, equity strategist and vice president at Federated Hermes.

Overall, however, "the risk-reward on the airlines is to the upside," Chiavarone said in the same interview.

He noted that the delta variant didn't have as severe an impact as the original strain of the virus in India, where it was first identified, or the U.K., where it first spread. He added that he expected to see a peak in U.S. infections "in the coming weeks."

New Covid cases in India and the U.K. have declined from their delta-fueled peaks. The CDC said Monday that the seven-day average of daily U.S. Covid cases topped last summer's peak. It has also warned that the delta variant is as contagious as chickenpox and could make people sicker than the original strain.

"We think you've got a second opportunity here to buy the reopening trade after a three-month discount that's occurred over the last couple of months," and that goes beyond the airlines, Chiavarone said.

"In cyclical sectors in general, we think there's a real positive risk-reward at current prices, understanding you could have a little bit more volatility in the coming weeks," he said.

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