As the broader equity market continues to mean-revert lower in a violent manner this week, transportation stocks like United Airlines (NYSE:UAL) have not been left unharmed. While much uncertainty around the coronavirus remains, UAL stock, through the lens of technical analysis, is starting to look very oversold and ripe for a bounce.
Very few industries will be left unharmed from the coronavirus outbreak and the resulting slowdown (if only temporary) of the global economy. Some of the more obvious industries to be affected by this are travel and leisure, which include anything from airlines to cruise ship operators to theme parks and more.
Thus, for those traders and active investors looking for potential bounce opportunities around any hopeful news around the virus, these areas of the market make sense to watch closely.
Before looking at the below charts let’s also note that a major cost for airlines is the cost of fuel. Oil prices have declined further in recent days and weeks, which all else being equal at some point could offer an ‘excuse’ to buy airline stocks, if only for a trade.
United Airlines Stock Charts
On the multi-year chart with weekly increments, we see that although United Airlines stock has been declining since topping out in late 2018, this week’s selling pressure has finally pushed the stock to the lower end of its longer-term up-trending channel (blue parallels).
From a momentum perspective, using the weekly MACD oscillator at the bottom of the chart, we see that we have now arrived at levels that previously also corresponded with bounces.
While none of this guarantees the stock stops dead in its tracks here and reverses higher, the confluence of support is noteworthy, particularly once the stock starts to show signs of reversing.
On the daily chart we see that from Q4 2018 until early this year, UAL stock has largely traded in a well-defined sideways range. The sideways range measures roughly 18 points. If we subtract 18 points from the low end of the range we get to the low $60s in terms of price level on the stock.
Using classic technical analysis, the low $60s thus may be an attraction point for United Air stock in the near-term. However this is not an exact science. Given the broader equity market is also close to short-term oversold readings, UAL stock could begin to bounce anywhere from the mid-to-low $60s.
Trading UAL Stock
My proprietary Vertical X Pro indicator on Feb. 26 began to print a first oversold signal in UAL stock. While this still requires a follow-through buying day before getting valid, it is worth pointing out to sit up and take notice.
I am no fan of blindly trying to catch a falling knife. Active investors and traders would be better off waiting for a bullish reversal day where the stock closes the day notably off its intraday lows. Upon such price action, a next upside target for the stock is $72, while any strong bearish reversal upon the bullish reversal entry point is a stop loss signal.
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