Shares of airline stocks saw a nice lift in recent days, which quickly brought out bullish spirits again in terms of market chatter. In my eyes, however, these stocks remain largely range-bound and capped on the upside by their six-to-nine-month highs. More specifically, shares of United Continental Holdings (NASDAQ:UAL) are still trading within a defined bearish technical pattern, and I see UAL stock heading back lower again soon.
As regular readers of my research know, I am a big fan of using a so called “top-down” approach, whereby the movement of sectors and industry groups as it relates to the stock market ultimately dictate the directional movement of most stocks within those segments. Simple math dictates that such an approach works favorably as around 70%-80% of stocks within any given sector or group will move in the same direction on any given day/week/month.
To wit, transportation stocks as a group, after taking a breather through most of the month of March, have rallied over the past number of days. This move has largely been helped by the more defensively oriented railroad stocks, although did pull most transports with it.
UAL Stock Charts
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Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
In the bigger picture on the multiyear weekly chart of UAL stock we see that it rallied sharply into early December 2018, at which point it had reached the upper end the longer-standing up-trending channel. The stock then gave way to gravity and pulled back into year-end.
What we have learned from this stock over the past number of years is that when it reaches the upper end of this bigger picture channel, particularly when it does so in a vertical ascent, it will tend to re-test the lower end of the channel before a more sustainable rally can unfold again.
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Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that UAL stock has traced out a notable head-and-shoulders pattern since September of 2018 and the top of which coincides with the top end of the aforementioned trading channel.
The most recent bounce in the stock came right off the horizontal black line, also referred to as the “neckline” of the head and shoulders pattern. More importantly, this bounce now has the stock right inside of a confluence area of technical resistance where the 50-, 100- and 200-day simple moving averages are converging.
Furthermore, the $84-$86 area also offers plenty of technical resistance from a simple Fibonacci retracement analysis.
Active investors and traders could look to short UAL stock in the $84-$86 range, using a stop-loss at $87.50 and a profit target at $79.
It is important to note that UAL is set to report its latest batch of earnings around April 16. This is to say that this trade idea should be closed again before earnings or risk the uncertainty of a binary outcome.
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