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Shares of US Airways Group Inc (LCC) reached a new 52 week high during Thursday's trading session despite major weakness in the broader indices.

(click to enlarge)LCC ChartLCC data by YCharts

Odd Of AMR Merger Increase

The odds of a US Airways/AMR merger increased on Thursday after AMR pilots rejected a final contract offer that would have paved the way for AMR to emerge from bankruptcy as a private company. In the past, any talk of a US Airways/AMR merger has been good for LCC.

Sector Strength

Despite the S&P 500 (NYSEARCA:SPY) being down by nearly 2.5%, airline stocks in general held up rather well. Delta Airlines (NYSE:DAL) closed higher while Jetblue (NASDAQ:JBLU), United Continental (NYSE:UAL), and Southwest (NYSE:LUV) all ended the day just slightly lower. However, it should be noted that LCC outperformed its peers significantly and was the only airline stock to reach a new 52 week high.

(click to enlarge)LCC ChartLCC data by YCharts

Oil Prices Decline

A major reason for the strength in airline stocks recently, and Thursday was no exception, has been the steep decline in oil prices. Lower oil prices have a major impact on all the airlines companies as jet fuel is a major input cost.

(click to enlarge)USO ChartUSO data by YCharts

(click to enlarge)USO ChartUSO data by YCharts

Short Interest Continues To Grow

As of May 31, short interest in LCC stands at 24.69 million shares or 17.7% of the float. This is a significant increase from the short interest figures provided at the end of April. (19.23 million shares or 13.8% of the float) This is a good sign as it means there are still plenty of shorts who need to cover. As the stock continues to move up, the pressure to cover continues to grow.

My Take

Despite LCC shares being up significantly from my first and second recommendation, I still believe the stock has room to the upside. The increasing short interest is interesting as it means the potential for a massive short squeeze still exists. However, for investors who have profits in LCC, taking something off the table might not be a bad idea. Buying airline stocks on oil weakness has often worked as a great trade in the past, but not as a great investment. Usually, weak oil prices are indicative of a slowing global economy which, in the end, hurts demand for flying and eventually airline stocks. That being said, for nimble traders, LCC probably has more upside over the short-term.

Source: US Airways Hits 52-Week High Despite Market Sell-Off