I will start with the obvious statement — if Royal Caribbean (NYSE:RCL) makes it out of this Covid-19 storm, then RCL stock will be a nice home run as it will have a lot of ground to cover. But given the headwinds that exist now, this is definitely a speculative investment. Investors need to be realistic with its prospects.
This is not a position that is easy to double down because it’s not a matter of when but rather if they recover. And even in the best-case scenario, this will take time. Patience and humility are of the essence.
Before the coronavirus crisis, the bull case for cruises was that it is a lifestyle experience. The fans of it were hardcore cruisers, and the ones that I personally knew were totally committed to it. But for now, even those people are sidelined — and for a long while too boot. This disadvantage translates directly into RCL stock. Investors can clearly find better opportunities in the markets to chase with fewer challenges and easier upside potential. But with great risks come great rewards.
RCL Stock Voyage Went From Cruise to Tempest Fast
Royal Caribbean’s stock was still trying to break out to new highs as recently as January of this year. But the efforts failed in a massive triple top and now it is almost 80% lower.
At its deepest, RCL stock fell back to levels that have been in contention since 1997. Clearly the investment community completely gave up on it as if it was going out of business. While this may be a possible outcome, Royal Caribbean was a healthy business just weeks before the economy shut down. So there is a good chance that it won’t fail.
Scientists are hard at work combating the virus . Meanwhile, the U.S. government is committed to aiding businesses so that this economy doesn’t collapse. While cruising is not an essential part of the daily lives, the incumbents will do all they can to save every high profile business possible. We are headed into an election season and massive corporate failures make for bad optics.
One way or the other, my bet is that RCL stock will survive this massive jolt, albeit with scars. What doesn’t kill it will make it stronger, just like the bank stocks after the financial crisis.
Bulls Can Chart a Better Course Ahead
There is almost no use discussing fundamentals, because there are none. There are nothing but debits hitting the P&L statements right now, so it’s better time spent looking for chart levels that matter.
Short term, it is a battle between the $30 base versus the $45 failure. Any breach of either of these sides will carry momentum in that direction. So if the bull can get to $46 per share, they could trigger a $20 breakout. There will be heavy resistance along the way, as early as $51 and especially heavy near $61 per share. Conversely, the bears will have an opportunity to retest the lows, but only if they can trigger the patterns below $32 and $28 respectively.
Longer-term charts are easy to read because RCL stock has little room to fall further. The price action now is inside an old and wide consolidation zone between $20 and $50 per share. Until these edges fail, the assumption is that there is support below. But this is not the typical statement of support, because there is no income. So all headline potentials are on the table — and the bullish conviction is low at best.
Eventually the world will move past Covid-19, but not all companies will survive. My bet is that Royal Caribbean will be one of the survivors. But is it a risky bet? Yes, and that is why I stuck the speculative label on it in the first paragraph today.
Nicolas Chahine is the managing director of SellSpreads.com. Join his live chat room for free here. As of this writing, he did not hold a position in any of the aforementioned securities.
