Did You Really Miss Buying Delta Stock? Maybe Not.

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When it comes to Delta Airlines (NYSE:DAL), there have been some very profitable bears in 2020 and now there’s more than a few bulls making hay. But in the near-term, DAL stock looks a bit like that undesirable middle seat that only leads to frustration.

dal stock
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It was a good week for the stock market and in many ways even more so for Delta investors. The S&P 500 celebrated a weekly gain of nearly 5% to come fractionally of break-even in 2020. Half of those gains came on the back of Friday’s better-than-forecast monthly jobs grand finale. But shares of Delta soared higher by more than 35% for the five day period.

So, what gives? What’s with Delta’s sudden out-performance? Aside from Delta’s 5.5% market-assisted jobs lift, the bulk of the DAL stock rally was tied to two separate industry-related catalysts earlier in the week.

U.S. airlines jumped strongly during Wednesday’s session after President Donald Trump announced a ban of flights from China-based carriers beginning in mid-June. The restriction follows the Transportation Department accusing China of blocking U.S. airliners and marks the latest episode of a rekindled trade war set in motion by the novel coronavirus. In the aftermath of the decision, the US Global Jets ETF (NYSEARCA:JETS) tacked on 7.3% while DAL rallied to finish with slightly stronger gains of 7.8%.

On Thursday commercial carrier American Airlines (NASDAQ:AAL) announced it expects 74% more flights in July over June, after promising ticket sales indications by American’s unshackled from Covid-19 stay-at-home mandates. Management went on to say July’s busiest day should more than double June’s single-day peak. By the close AAL shares had flown higher by about 41%. At the same time, DAL finished up 13.73% as investors took the news as a sure sign air travel is on the rebound.

Airline Stocks Moving Forward

So, has the world changed for Delta and the airline industry? In the span of a week, it certainly may seem that way for some investors. But just over a month ago, Wall Street was digesting a warning from Berkshire Hathaway’s (NYSE:BRK.B) Warren Buffett. In early May the legendary value investor stated “the world has changed” and not for the better for airliners.

The ominous proclamation was announced alongside news the investment firm had unloaded its entire airline stake. The industry exit, some of which had been purchased during the pandemic’s initial fallout, included unwinding sizable positions in Delta, Southwest Airlines (NYSE:LUV), American Airlines and United Airlines (NASDAQ:UAL) due to the negative long-term consequences and uncertainties of Covid-19.

DAL Stock Weekly Price Chart


Source: Charts by TradingView

Who are investors to believe when it comes to Delta? Should investors take a cue from Warren Buffett and shy away or even short airlines? Or could this be one of those instances, despite the group’s still challenging circumstances, where the Oracle of Omaha is wrong? According to the technical outlook, it’s best to avoid it for the time being.

Last week’s rally in Delta shares and now Monday’s continued follow-through has lifted shares squarely in between the 38% and 50% retracement levels. This area also holds a key high illustrated by the black line on the provided weekly chart, which follows a significant bearish price gap from March 12 during the Covid-19 fallout.

Given the sizable rally into this price zone, as well as stochastics just breaching oversold levels and record-breaking volume indicating too much short-term enthusiasm, resistance is increasingly likely to hold in the near-term. Eventually this barrier’s ability to act as resistance will fail. Sorry, Warren. For now, Delta shares are more deserved of being put on the radar for buying on a pullback in anticipation of profit-taking.

If I were to make a forecast of what a decline in share price might look like, I’d see $30 – $33 as an area where profit-taking is trumped by supportive buyers. The low end of the range is backed by 2016’s channel low and the 38% retracement level of the rally in Delta since bottoming in May. And the upper reaches of this zone? Bottom-line, in an imperfect world and a still very volatile stock, a 10% margin of error looks about right when it’s backed by the high of a failed and very bearishly-wrong descending triangle.

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.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2020/06/did-you-really-miss-buying-dal-stock-maybe-not/.

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