The actions of Wall Street’s biggest players deserve our consideration. But there are times when those weighty influences on a company’s share price turn into a “just plane smart” opportunity for other investors. And right now Southwest Airlines (NYSE:LUV) is landing on supportive ground for potentially good value on future trips in LUV stock.
I’ve said it before, Warren Buffett’s longevity is no accident, nor are his famed returns as one of the market’s most revered investors. And as most other investors with even a passing interest in the stock market are aware, in early May, his investment firm Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) announced it dumped its entire and massive stake in airliners while warning “the world has changed” after the novel coronavirus.
The news was enough to send Southwest Airlines down 5.71% and fresh five-plus year lows in the immediate aftermath. The pressure was also on top of an already dismal drop of around 45% in shares in 2020. And in the several sessions which have followed, LUV stock is down an additional 6.50% in bumpy but pressured trading.
To state the obvious, other investors have been doing more than just listening to the Oracle of Omaha as it relates to Southwest Airlines, and for that matter, peers American Airlines (NASDAQ:AAL), Delta (NYSE:DAL) and United Airlines (NASDAQ:UAL), whose stocks were also sold by the firm.
Still, Buffett isn’t infallible. A couple critical buy and sell decisions in Disney (NYSE:DIS) over the decades cost Berkshire in the neighborhood of $16 billion in total returns. Ouch! Furthermore, infamously backing away from earlier investments in big tech companies such as Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) has proven more than a simple rounding error for his shareholders.
The point is and to steal a phrase made famous by the investing giant, “buying when others are fearful” is now becoming relevant to the conversation in LUV stock.
LUV Stock Monthly Price Chart
Source: Charts by TradingView
In our estimation and to steal another line, it’s “just plane smart” business. I’m referring to persistent selling in Southwest Airlines, which could lead to a solid buying opportunity. The price action has cratered shares into a key, albeit very wide technical support zone worth monitoring for a bottom to emerge.
A support area from roughly $19 – $28 holds the 62% and 76% Fibonacci retracement levels tied to the 2008 – 2009 financial crisis. The zone also contains the former all-time-high from 2000, which took 14 years to clear. It’s important business to say the least.
Alongside aggressive monthly chart price action that’s outside the monthly Bollinger Band for a third month in a row, oversold stochastics and record-breaking volume, conditions supporting a possible capitulation in shares have grown. And reasons for buying Southwest Airlines, not selling LUV stock, have similarly increased.
For investors unafraid to board the stock despite Buffett’s actions and words, I’d look to the weekly time frame for timing an entry in conjunction with a slightly out-of-the-money bull call spread. Right now, with Southwest shares forming a candlestick inside the prior week’s bullish doji / hammer, a breakout above $28.25 looks promising as a buy signal.
Alternatively, and as pattern’s have been known to fail, buying deeper within the wide support area should be watched closely. Appreciably, a second or third candlestick further penetrating this technical area could be much more attractive for actualizing stronger value off and on the price chart.
Without question, I’d still wait on a weekly chart pattern low to fully form before buying into Southwest Airlines. I’d also look to the options market for a similar, risk-reducing vertical spread that offers a well-leveraged alternative to buying LUV stock.
Disclosure: 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.