Airline shares have long been in the doldrums. So far this year, the AMEX Airline Index has lost more than 25%.

However, recent price action suggests the group could be forming a short-term technical bottom. With growing speculation about consolidation in the industry -- just this afternoon, Delta Airlines Inc. (NYSE: DAL) denied rumors that it was in merger talks with UAL Corporation (NASDAQ: UAUA) -- and the busy holiday travel season approaching, investors could warm to the group. That could be just the sort of catalyst to get things moving.

Meanwhile, oil (and oil shares) remain overextended (even though today saw a knee-jerk bounce following the downside correction of the past 48 hours). That bearish view seems especially true given yesterday's news that the International Energy Agency had cut its forecast for global energy demand as result of the recent high prices. Of course, airlines are big users of petroleum-based fuel.

Depending on your risk tolerance, it might be worth either buying the airline group outright or, perhaps better still, selling (or shorting) oil shares -- or the Energy Select Sector SPDR Fund ETF (AMEX: XLE) -- against it.

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle.