The market is on the mend, but not all stocks are being buoyed up by the rebound. We’re witnessing a sifting of sorts between companies that were unjustly beaten and those that deserve further spanks. Unfortunately, for transportation enthusiasts, airline stocks find themselves among the latter group.
Indeed, as I survey my watchlist this morning, I’m seeing many leading airline stocks careening lower. Blame for the sudden plunge lies with American Airlines (NYSE: AAL ) which just slashed their profit forecast citing lower than expected domestic fares. Previously, fellow carrier, Delta Air Lines (NYSE: DAL ), had lowered its revenue projections for 2018 so today’s AAL comments are simply adding fuel to an already burning fire.
On the technical front, airline stocks are showing major signs of weakness, and many have breakdowns looming. Here are the three that look the most concerning.
American Airlines (AAL)
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Traders heeding the message broadcast in American Airlines price chart have received many warnings throughout 2018. Ever since breaking below the 200-day moving average last March, AAL stock has been cruising lower. And with its shares down almost 50% since last year’s peak, the earnings slowdown has obviously been priced-in to a certain extent.
The million dollar question is whether more bloodletting is in order before the deteriorating fundamentals have been adequately baked in. For now, I suggest letting the technicals be your guide.
$30 is a pivotal price threshold that is being tested once more with today’s 10% plunge. If you’re looking to deploy bearish trades, I suggest waiting for this support to give way before pulling the trigger.
Delta Airlines (DAL)
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This morning’s gloom is weighing on Delta. Though, at the time of this writing, it has rebounded nicely and is only down 2.4% on the session. While DAL stock is well off its 2018 highs, the damage hasn’t been near as bad as that inflicted on AAL shares. So if you’re looking for the weakest of the bunch, stick with AAL.
The trend of DAL is currently pointing lower, complete with descending 50-day and 20-day moving averages. With significant support looming near $45 I suggest waiting for a breakdown before deploying a bear play. That or a rally back toward $50 to create a nice retracement setup. Either way, with the stock in the middle of its recent range, I see little edge here one way or the other.
Earnings is coming around the corner on January 15th, so wait for the release to provide more directional clarity before deploying your dough.
United Continental (UAL)
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With today’s gap lower, United Continental (NYSE: UAL ) is on the cusp of completing a multi-month topping pattern. The December plunge carried UAL stock back to its 200-day moving average and essential horizontal support near $79. This is the fourth such support test in the past three weeks, so I suspect the floor is weakening.
The next earnings report is scheduled for Jan. 15 making it challenging to place new trades right here. Rest assured volatility will be elevated following the event so even a clean setup like the current breakdown pattern could turn messy.
Nonetheless, UAL should be on your list of bear ideas if it breaches $79.
As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.
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