Delta Air Lines Inc. (DAL) — I last recommended DAL stock on July 28, when it was trading just over $38, with a trading target of $45 and a 12-month target of $50. At the time, in addition to positive technicals, I anticipated the airline would benefit from pent-up demand for air travel.
The plunge in oil prices has been a huge boon to airline stocks. Although Delta said it may have to write off $1.2 billion from fuel hedging next year, management expects increased profits. They forecast pretax income will be up 11% to $5 billion, which includes a net gain of $1.7 billion in cost savings thanks to lower fuel prices.
DAL stock has been in a bull market since November 2012, and until the October correction, it found support at its 50-day moving average. Following the correction, DAL stock reversed, jumped through its 50-day moving average, and then through the top of a right triangle on a breakaway gap — all very powerful technical events.
Now, at over $48, DAL stock is close to my long-term target of $50. Those who are looking to book profits this year should enter a sell order at that price. However, crude hit a new five-year low Thursday, closing below $60 a barrel. As long as oil prices continue to fall, DAL stock is likely to rise.
Traders should hold but enter a trailing stop-loss order 5% to 10% below the current price, continuing to benefit from any advance while protecting their profits.
