Earnings season is set to kick off this week, and Delta Air Lines, Inc. (NYSE:DAL) is one of the first few dozen companies to report, as well as the first of the major airlines. The sharp rally in DAL stock since last summer has put shares in an interesting chart spot as we head into earnings.
Here’s my take on how to trade Delta stock following its earnings report, due out Thursday, Jan. 12, after the bell.
At the time, I said DAL stock seemed to be improving its near-term posture, just as it was nearing critical support on the longer-term charts.
I also said one could look to play an initial bounce versus the June lows using an initial price target in the high $30s, representing about an 8% move in the stock.
This price target was reached just a few days later, and the June lows have held ever since.
Before looking at Delta’s stock charts, note that the improvement in both U.S. and some global economic data over the past three months (after many data points had been slowing for about 12 months) should also spell positive things for airline stocks, which by definition are cyclical in nature.
DAL Stock Charts
We can gain a lot of perspective on stocks and other asset classes by looking at several time frames.
The longer-term view on Delta stock reveals that despite the sharp rally over the past five or so months, shares remain rangebound with the low $50s still acting as resistance. Through a pure price action lens, this area of resistance must first be cleared for longer-term bulls to get excited again.
However, also note that the summer 2016 lows did coincide with the rising red 200-week simple moving average. Thus, weakness in the first half of 2016 helped reset the stock somewhat and worked off these longer-term overbought readings.
Moving on to the daily chart, we note that DAL stock by mid-December had reached the upper end of the aforementioned bigger-picture trading range. It has been consolidating in an ever tighter pattern ever since.
Moving average aficionados will find hope in the fact that the 50-day (yellow) and 100-day (blue) moving averages have both crossed above the 200-day (red) moving average over the past few weeks.
One of my simple but effective filters is to (for the most part) only buy stocks when they trade above upsloping 50- and 100-day moving average. Delta stock now fits that bill.
When Delta reports earnings on Thursday, Jan. 12, the price action will likely either break the stock out of the current multiweek trading pattern to the upside and thus out of the bigger picture trading range, or it will break the stock back down toward the middle of the big picture trading range.
A break and hold by DAL stock above the $52 area following earnings could set up good long-side trades toward the $55-$60 area.
Alternatively, a breakdown after earnings below the yellow 50-day MA could get the stock back into the low $40s and toward the 100- and 200-day averages. From there, you would have to wait for new bullish reversals before buying opportunities would arise once again.
– Serge Berger
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Source: Investor Place