Roll the Dice on These 3 Travel Stocks Into the Second Half of 2020

Travel stocks - Roll the Dice on These 3 Travel Stocks Into the Second Half of 2020

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As the world starts reopening for business, the selling pressure is beginning to lessen for travel stocks. During the stock market crash the group looked like they were headed for zero, and for good reason.

There were absolutely no sales flowing through company top lines and expenses were piling up. Moreover, there was absolutely no light at the end of the tunnel because the quarantine had just started. Reality set in and panic on Wall Street ensued. This morning, however, sentiment got a dose of relief on news that a Moderna (NASDAQ:MRNA) vaccine against the novel coronavirus showed promising results.

Also in the past couple of weeks several states have begun reopening, albeit with limitations. But we also have critics calling the actions irresponsible because of the risk of reigniting the spread of COVID-19. Travel stocks will ride out the headlines surrounding the debate on whether-or-not states should be re-opening so soon.

Today we revisit three of the stocks I covered last month. We will render judgment if these are trades worth holding, selling, or accumulating. The three travel stocks in question are:

  • Carnival Cruises (NYSE:CCL)
  • Caesars Entertainment (NASDAQ:CZR)
  • Wynn Resorts (NASDAQ:WYNN)

First, it is important to note that travel stocks will have to change their ways of doing business moving forward. If that’s the case, then some of the changes will severely impact the way they can profit post-pandemic. I can understand limiting the reopening until the virus clears up or a vaccine becomes available. But materially changing the way we live forever would be overkill.

The way travel and entertainment businesses built their casinos, ships, and hotels becomes completely wrong. For example, they would have to cut a high number of staff if they restrict to 25% or even 50% of normal operations. These companies will no doubt do it at a loss. I get that some money is better than none, but there is a point where staying closed is cheaper than running it lean. Managements cannot eliminate hard costs that happen simply by turning on the lights.

Cash management is going to be the top priority. Companies are issuing debt and stocks to hoard cash because they know that they will have to tighten their belts for the tough months to come. The reopening process is good news for a start, but that is all that it is: a start. The pain will linger through the rest of the year at least.

The leaders of the world made the conscious decision to shutter most businesses deemed non-essential, so they scheduled a depression like a sports event. This is worse than a recession because these companies have suffered badly. Millions of those companies will not make it out of the Covid-19 crisis. Right or wrong, there must be a better way of doing this because if we get another virus, the world cannot afford the same procedure. This is proof enough for me to seek a better way of handling this the second time around.

Carnival Cruises (CCL)

Travel Stocks: Carnival Stock Chart
Source: Charts by TradingView

Carnival Cruises stock is stuck in muck. After I wrote about the group in April, CCL rallied more than 35%. But they failed at levels that make technical sense. There is a lot of resistance around $16 per share for CCL stock. Investors who didn’t book profits are back to where they started from.

This is proof that at this point travel stocks are better trading vehicles than mid-term investments. The concept of buying and holding for the long term is risky but viable. Picking the right time frame is important for success with CCL stock.

It is also too soon to start talking about fundamentals because they are obsolete and could completely change even after the reopening. For now they still have no sales, only expenses. Management is cutting costs and looking for new streams of income. I can imagine that they will need to raise prices going forward, but that could be easier said than done. We have more than 22 million people out of work in the U.S. alone, so they would be hard pressed to fork over extra money to hop on a cruise ship.

I anticipate that the pain for cruise lines will linger longer than, say, shore casinos. Once you set sail, you are stuck and vulnerable to an outbreak. This fear was a problem for many people even before this virus, and there’s no doubt that it will be bigger now.

Technically there is support below $8 per share. But these are levels that are so depressed that losing them could mean company collapse. Without incrementally bad news, I anticipate that the bulls will try to hold and set higher lows to breach the resistance zone above. Once they do, they can target the next problem area at around $21 per share.

Caesars Entertainment (CZR)

Travel Stocks: CZR Stock Chart
Source: Charts by TradingView

Caesars Entertainment suffered tremendously at the hands of this virus. From its February highs it fell 75%, however, the difference here it is that its bounces have been stronger than cruise line stocks. In fact, it has already recovered 60%. Now the bulls have a battle on their hands against the technicals.

At $10 per share, it faces the early March pivotal node level, which also coincides with the 61.8 Fibonacci retracement. Since machines do most of the trading these days, they look for mathematical ratios to make buy and sell decisions. These ratios then become self-fulfilling prophecies that investors need to pay attention to for the short-term.

At these levels, I expect resistance, but that would be part of normal price action. The stock will benefit from a small dip towards $8.50 per share in order to build a better base. This will give the chart the chance of gathering more momentum to attack the resistance here. Once they break through it they can immediately start another 25% rally.

Breaking through $14 per share will be near impossible, so investors will need realistic expectations with trailing stops. I would even exit the whole position anywhere near $13. If I seek perfect exit points I’d inevitably get caught in a surprise headline. This is not the time to be greedy, because the VIX is still 2.5 times what it should be, and the travel stocks are the worst-off group.

Fundamentally, CZR has to face a new set of metrics, so the discussion now is futile. What matters is that they have enough cash to come out of this quarantine and gradually reopen. After the dust settles investors can go back to evaluating fundamentals. Until then, the lines are blurred between investing and trading. Both are slaves to headlines.

Wynn Resorts (WYNN)

Travel Stocks: Wynn Stock Chart
Source: Charts by TradingView

Wynn Resorts was a favorite stock of many traders, and for good reason. For a while under the leadership of Steve Wynn it soared. But thanks to a sexual misconduct scandal, that’s also when the problems started. The fight over leadership absolutely demolished the momentum WYNN stock had going into 2015. It almost recovered, but that too ended in the crash of 2018 with a double top hat at $200 per share. This was a far cry from the old $250 high. Technically, once it lost $90 per share, it was destined to fall another $40. Virus or not.

This stock has done well since April. The price range got tight, which launched it into a spike towards $90 per share where it was only natural to fade. It hit the 50% retracement and failed as part of normal price action. As long as they hold the support near $70, the bulls can remount the effort and finish the job.

By breaking through they can immediately start a $30 rally, but they will have to face other levels of resistance along the way. An obvious place to look for sellers is around $110 per share. This is a major ledge that dates back months so it won’t be easy slicing through it, at least not on the first try.

Those who went long in the middle of April have profits and should adjust their stocks accordingly. Now it is dangerous to overstay one’s welcome in winning trades. This is a hard concept for investors to grasp, but those who are in it for the long term know that it is part of the winning formula. If a trader cannot take profits or losses then they are likely to make major mistakes. There is a reason why they say “don’t ring the bell at the top of the market.”

Of travel stocks, Wynn Resorts still has decent fundamentals under normal conditions. What we don’t know is what the new normal will look like for it. This company has been around long enough that they should know how to adapt and thrive. It becomes important to define the time frame for each investor. Trading in and out of stocks requires charting skills, otherwise the other side of the trade has an advantage.

Selling puts instead of buying makes for a great alternative entry into any of these stocks today because there is proof of support, but not proof of impending rallies. If I’m willing to buy the shares at this level then I could sell puts to buy them cheaper. Doing so would make an investors long the stocks with a 20% price buffer or more.

Nicolas Chahine is the managing director of Join his live chat room for free here. As of this writing, he did not hold a position in any of the aforementioned securities.

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