We are entering a big week for corporate earnings and, as such, we could see volatility rise among single-name stocks and even spill into broader equity indices. Airline stock United Continental Holdings Inc (NYSE:UAL) has actually already reported earnings recently, but largely remains in a tight and well-defined holding pattern. However, UAL stock looks primed for a breakout fakeout move, which traders could take advantage of.
Before looking at UAL, let me say a couple of words about broader market risk.
Today, we enter the first full trading week under President Donald Trump. In my discussions with investors over the past several weeks, it has become increasingly clear that although the stock market has yet to show it, investors are concerned that optimism has risen too far, too fast, ahead of the new president taking office.
Like any change in a new major office, whether in the corporate sector or in politics, markets will need to get used to the new form and tone of communication coming out of the Trump administration. This could over the next few weeks or months lead to a few bumps in the stock market. Currency markets are already beginning to show some concern as the dollar index has broadly backed off its December highs.
So, this week could prove to be a first test for investors as they try to find a rhythm with the news flow out of president Trump’s office.
UAL Stock Charts
Jumping right to the charts, we can see that shares of United Continental have risen sharply since the summer 2016 into the December highs — a move that totaled nearly 100%.
This rally began just as the stock retested its longer-term support line (purple-dotted line), marginally undershot its 200-week simple moving average (red line) and momentum oscillators flashed oversold last July.
As a result of the sharp rally, however, UAL stock once again is seeing its MACD momentum oscillator at the bottom of the chart. The indicator is producing overbought readings last seen in early 2015, where the stock reached its previous all-time highs.
Typically this type of picture does not bode well for a continuation higher in the intermediate-term. Instead, it points toward further consolidation if not an outright retracement lower.
On the daily chart, we see that much like the broader stock market, UAL stock since losing steam in mid-December has largely trotted sideways and thus worked off some overbought readings in a constructive manner.
While the multiweek/multimonth picture from the above chart ultimately begs for more consolidation before a potential push higher stands a better chance, the daily chart is more neutral and could see a breakout higher before a next corrective move sets in.
Active investors and traders looking to capitalize on a potential breakout in UAL could look to buy the stock upon a break and hold above $76, which could open up a first upside target near $80.
Any bearish reversal from there should be taken as a stop-loss signal.
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