A Bullish Take on Delta’s Recent Dive

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Airline stocks on Monday came under further pressure as concerns about international spreading of the deadly Ebola virus rose. Among them, shares of Delta Air Lines (DAL) dropped sharply on heavy volume, breaking into deeper oversold territory just in time for the company’s third-quarter earnings report this Thursday.

In general, when a stock falls or rallies sharply just ahead of its earnings report, the post-earnings reaction in the stock should be closely monitored as it can set up for strong bullish or bearish reversal moves for traders to sink their teeth into.

Of course, it wasn’t just the airline stocks showing weakness on Monday. The entire transportation sector looked ugly as the iShares Dow Jones Transportation Average Index (IYT) shed another 2% and cleanly pierced below its rising 200-day simple moving average (red line) for the first time in about two years. (Airlines make up about 14% of the IYT and thus certainly contributed to Monday’s hammering.)

IYT
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The selloff in transporation stocks has been sharp and fierce since late September, but instead of shorting stocks into the hole, active investors would find better odds looking for a sharp oversold bounce in this group of stocks.

DAL Stock Charts

Looking at DAL stock’s multiyear weekly chart, note that since the sharp rally began in late 2012, Delta rallied about 390% into the June 2014 highs. Upside momentum topped in late 2013 and thus flashed major negative divergence, which finally began to weigh on DAL stock in recent weeks. So far, the stock has retraced to the 38.2% Fibonacci support level of the entire 2012-14 rally while the Relative Strength Index (RSI) is approaching oversold readings.

DAL stock is no blind buy from this perspective, but it’s certainly beginning to look more interesting from the long side.

DAL stock charts weekly
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On the daily chart, DAL stock has seen oversold readings in the Stochastic Oscillator for some time, and while oversold readings in oscillators can remain for some time, the longer it stays there the better the chances of an ultimate snap-back higher in the share price.

Also note that after Monday’s selling, Delta has now reached a horizontal band of support that saw a good amount of price discovery earlier this year and that led to the final overshooting.

In other words, the irrationally exuberant part of DAL stock’s rally has been worked off.

DAL stock charts daily
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Active investors now need to see how the stock reacts to Thursday’s earnings report. Of particular interest would be any sort of post-earnings selloff that quickly turns around. Such price action could quickly get DAL stock back toward the $36 area for a retest of its 200-day simple moving average (red line) from underneath.

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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/10/delta-dal-stock-charts/.

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