A rising tide is said to float all boats. But when it comes to Carnival (NYSE:CCL), investors need to know where the exits are before climbing aboard CCL stock. Let me explain.
To be certain, it has been a great week for Wall Street — and even some Carnival investors. Out of the gate on Monday, the broader averages ramped higher on sorely needed confirmation for the prior week’s “iffy” market bottom. Healthy gains of around 6.75% in the large-cap and diversified S&P 500 were backed by a collective sigh of relief from investors.
The move followed reports that a peak in the novel coronavirus may be at hand.
And beleaguered cruise line operator Carnival wasn’t left stranded either. Shares sailed strongly higher by more than 20% in Monday’s session while handily outperforming the broader market. And in some ways, its only gotten better throughout the week for CCL stock.
Good News Lasted Beyond Monday
Investors continued to wade into the market’s waters Tuesday on price momentum as the historic correction turned increasingly into a more meaningful bottom. It wasn’t entirely smooth sailing though. Stocks across the board backed well off their early intraday highs. Yet Carnival shares still managed to stay afloat by more than 10.50%. And buyers were back on Wednesday.
Word of “social” Democratic Nominee Bernie Sanders dropping his bid for the White House allowed market investors and Carnival shareholders to breathe easier for a third straight session. The S&P 500 managed to tack on nearly 3.5%. And once again, CCL stock outperformed by adding more than 6% by the close of trade.
Now in Thursday’s session, news of the Fed unveiling a $2.3 trillion coronavirus lending program has made it four in a row for Wall Street with the S&P 500 climbing 1.65%. And with the wind at their back and help from an upbeat industry report, shares of Carnival are up an additional 10.50% intraday.
Based on cash burn and near-zero revenues until an estimated turning point in Q1 2021, Instinet analyst Harry Curtis sees bankruptcy risk as low for cruise line operators. Moreover, Carnival and peers Royal Caribbean (NYSE:RCL) and Norwegian Cruise Line Holdings (NYSE:NCLH) could see 70% to 90% upside potential in share price over the next couple years based on the firm’s estimates.
Be warned, though — from another investor’s looking glass, hopping on board near-term in CCL stock looks increasingly fraught with risk.
CCL Stock Monthly Stock Chart
Source: Charts by TradingView
While the S&P 500 flirts with a one-month high and challenges the 50% retracement level of this past month’s bearish market flu, CCL stock remains in more dangerous technical waters. The decline in Carnival shares has been no run-of-the-mill correction like those found in other heavyweights, from Apple (NASDAQ:AAPL) to Target (NYSE:TGT) or Bank of America (NYSE:BAC).
To be fair, contrarian investors eyeing Carnival shares aren’t entirely without technical support on the price chart. The long-term monthly chart of CCL stock shows April’s rally has allowed shares to reverse back above its financial crisis low in a still-developing bullish hammer candlestick pattern. And record-breaking volume does suggest a climax low could be in-the-works. Still, risks in Carnival are apparent.
April’s stock price formation is still largely up for grabs with more than three weeks left in the month. There’s also Carnival’s monthly stochastics. A recent bearish cross back towards oversold levels puts shares out of position for buying in the near-term. Lastly, CCL stock remains beneath a broken lifetime trend and 76% Fibonacci level.
Bottom line, my advice for would-be buyers of Carnival is to be patient. Allow a more supportive stochastics setup to emerge over the next couple to few weeks before considering a purchase. And along with any future allocations, a stop-loss of as much as 20% — or gaining exposure and ironclad control vis-à-vis the options market — is mandatory for ensuring the safety of your portfolio.
Investment accounts under Christopher Tyler’s management do not own positions in any securities mentioned in this article. 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.