The stock markets this year are still enjoying a big rebound off the terrible crash we had last Christmas. Sentiment reached a low last year, and now we are rallying in the face of worries like the inversion of the yield curve and a global tariff war.
Similarly, Carnival Corporation (NYSE:CCL) stock has also done well, matching or beating the market. It came into its earnings report up 13% year-to-date, which slightly edged out the S&P 500 performance.
This morning, CCL stock is under pressure, falling 5% in pre-market action. Management reported earnings, and for now, investors are not happy about what they saw. Lately the reactions to CCL on earnings events have been poor, and this morning looks like another bad reaction to the news.
CCL Stock Troubles
This is not to say that CCL failed. In fact, they beat both top- and bottom-line expectations. They grew sales 10% over the same period last year while also increasing margins almost 6%. So they met the goals while expanding profitability. This shows a company that knows how to execute on plans.
But these days, investors are fickle. They want companies to not only report a good quarter but also to wow them with the forecast. In the face of such global macroecnomic uncertainty, this is rarely going to happen. CCL management must remain cautious with its guidance. For now, I put more stock in the actual results that they delivered than the forecast for next season.
Nevertheless, there is potential risk below, because if the CCL stock price falls below recent support, it could have more room to fall.
Coming into the earnings report, Carnival’s price range tightened into a point. This built up energy, and Carnival needs to release it. The earnings reaction this morning may trigger a breakdown to test recent support.
Losing $54.50 per share could trigger a bearish technical pattern. This would invite more momentum sellers and target another leg lower to $51 zone. This is not a forecast but it’s definitely a possible scenario that investors need to know.
Conversely and if the bulls are able to defend again this selling onslaught, there are upside lines to watch. A break above $56.80 would register a breakout from the descending trend line of lower highs. Should that happen it would target $57.70 or higher with small resistance zone at $57.20 along the way.
But first, this morning the bulls have to deal with the negative reaction to the headline. After all is said and done, dips are normal as long as there is no fundamental reason to sustain them. This morning we saw that CCL management continues to execute on plans without major mistakes. So any sizable dips including this one are in theory opportunities to go long.
Those who own the stock for the long term need not fret this morning’s tizzy. Short term traders from both the bull and bear sides have opportunities to trade the stock depending on how the tight range unfolds in the next day or two.
Last earnings report triggered a massive 18% crash, so I definitely don’t want to be a hero here trying to catch CCL stock on its first red tick. Those who own the shares can probably buy some protection puts for the next two weeks just in case the selling persists.
But the last earnings report coincided with the December stock market disaster, so the CCL move was exaggerated through no fault of its own.
Fundamentally, Carnival is cheap, as it sells at a 12x trailing price to earnings ration for the previous 12 months. So there is value to support the price and not a lot of froth to shed. Moreover, the zone around $53 per has been pivotal for over a decade. Those tend to be support on the way down because neither bulls or bears want to give them up easily, thereby creating congestion.
Long-term investors should not worry about the short-term gyrations here and hold it for the long term. Also, it would be counterproductive to fish for the ideal entry point, since the objective is to hold for years. If the stock market is higher later, then so is CCL stock
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
