This Stock is Offering a Bearish Trade Setup

Shares of United Continental Holdings Inc (NYSE:UAL) fell close to 2% on Tuesday, following a tough second half of October. All of this now has UAL stock lower by nearly 20% for 2017 and through the lens of technical analysis further weakness looks to be in the cards.

When United Continental reported its latest batch of earnings on Oct. 18, it failed to impress investors.

But what really didn’t help was the following day’s conference call where CEO Oscar Munoz admitted that United had “dug ourselves historically into a bit of a competitive hole.”

As a side note, the weakness on Tuesday wasn’t just concentrated to UAL stock but indeed the transportation stocks as a group traded heavy, resulting in the iShares Dow Jones Transport. Avg. (ETF) (BATS:IYT) closing below its 50-day simple moving average for the first time since September.

This is no reason to sell everything and head for cover, but it does warrant paying more attention to the transportation stocks again.

UAL Stock Charts

Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

On the multiyear weekly chart above, I plotted UAL stock on top and the XAL Airline index at the bottom. Note that after topping out in June, UAL has been marking its chart with a series of lower highs, the most notable of which occurred in October. The stock now weighs heavily on its red 200-week simple moving average and a break below there would be no good news through this lens.

At the bottom of the chart, the XAL airline index may have traced out a bearish head-and-shoulders pattern that now sits on the blue line.

None of this necessarily means these stocks are doomed, but rather that they, in my eye and in this time frame, offer bad reward-to-risk at this juncture for new long positions.

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

On the daily chart, note that after an initial leg lower in the summer months, UAL stock bounced in September. This bounce however was quickly met by strong confluence resistance made up of the 100 and 200 day simple moving averages (blue and red lines respectively) as well as the 50% retracement line of the entire June-September sell-off.

Given the strong post-earnings selling, it now looks likely that we see an extension lower of the initial summer weakness, which by my estimate could target the $52-$55 area. Any strong bullish reversal particularly on a weekly closing basis would be a stop loss signal.

— Serge Berger

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Source: Investor Place