Royal Caribbean: Sail South With RCL Stock

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A rising market tide lifts all boats, so they say. But a generous gain of 1.5% in the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) so far this week hasn’t buoyed cruise operator Royal Caribbean Cruises Ltd (NYSE:RCL).

Royal Caribbean: Sail South With RCL StockAnd if we’re reading the chart right, there’s still time for traders to book a trip south in RCL stock using a bear put spread.

The sudden change of course in RCL shares ebbing further away from the broader market’s rising and bullish flow has largely been attributed to Royal Caribbean’s disappointing earnings report this week.

Royal Caribbean managed to beat profit views by 6 cents a share, but a second consecutive gloomy profit forecast sent investors in RCL stock jumping ship for safety. Specifically, management at Royal Caribbean announced yet another weak outlook for 2015.

Higher fuel costs and a strong greenback pinching foreign purse strings once aboard the ship were cited as being behind Royal Caribbean’s reduced guidance.

The latter onboard sales figure is an important revenue stream for RCL shareholders as the captive sales source amounts to roughly 27% of sales and fell 5.6% from the year ago period.

RCL Daily Chart

042315-rcl-stock-chart
Source: Charts by TradingView

Monday’s gap and drop reaction by investors amounted to a loss of about 8% in RCL shares. Technically, the move resulted in a closing test of a high-level double bottom produced off late January’s bearish earnings aftermath and a subsequent retest of those lows in March.

Pattern support, along with a 38% Fibonacci level hasn’t yet broke, but a broken uptrend and lower high surrounded by two bearish earnings gaps in 2015 is technical evidence of RCL stock potentially sending out a SOS.

The past three sessions have found RCL shares consolidating inside Monday’s price range and look to diffuse a short-term oversold condition before Royal Caribbean heads even lower.

Bears do have to be a bit wary of the 200-day simple moving average stationed just south of RCL’s current position. But given a second straight warning that’s less likely to resemble January’s gap fill; we anticipate a lower share price for RCL and confirmation of a new downtrend taking hold.

RCL Bear Put Spread

For traders on board with Royal Caribbean stock moving lower, the May $75/$72.50 bear put spread for $1.50 or better is a nice blend of risk-to-reward. With RCL trading at last check at $72.73, the spread expands in value by 77 cents at expiration and nets a 50% return on investment in just more than three weeks’ time.

If shares of RCL move lower by as little as .30%, this put spread realizes its maximum profit of $1 as it expands to the strike distance of $2.50. Defensively and because of its positioning, Royal Caribbean stock can even rise by about 1% before the spread starts to incur a loss at expiration.

For bears to secure even safer passage, in the event our navigation skills reading the RCL chart are off, we’d use a 50% stop loss, or 75 cents, to further reduce the vertical’s maximum exposure of $1.50 per spread.

To necessitate the early departure, using this dollar-based stop loss would currently require RCL shares to reverse and climb back up about 3% to Monday’s highs near $75. Bearing that in mind, risk-reducing maneuvers as RCL potentially sets a course towards filling a second straight earnings gap is a smart choice to consider.

As of this writing, investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon his observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2015/04/royal-caribbean-sail-south-with-rcl-stock/.

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