How Much Upside Does Carnival Cruise Stock Have Left?

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After getting obliterated, Carnival Cruise (NYSE:CCL), Royal Caribbean (NYSE:RCL) and others have been surging back to life. Case in point: CCL stock is up more than 200% in just over two months.

ccl stock
Source: Ruth Peterkin / Shutterstock.com

The move follows Carnival’s double-bottom near $8. As the economy continues to reopen — both domestically and internationally — airlines, cruises and other “reopening America” trades are ripping higher.

The entire rally has caught investors off-guard. The S&P 500 is now up 47.5% from the March lows. First it was led by tech. Now, the investment dollars are rotating into energy stocks and “reopening America” trades.

For CCL stock, investors are wondering how long this momentum can last and how much upside could still be left. Let’s look at the charts, first.

Trading CCL Stock

Chart of CCL stock
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Source: Chart courtesy of StockCharts.com 

In mid-March, Carnival bottomed near $8, tagging that mark once again in April a few weeks later. The ensuing double-bottom vaulted shares higher as the stock treaded water above $11.

Once CCL stock gained momentum in May, the rally became violent. Shares tested the 23.6% retracement in late May, then burst through this mark in June. In just a few days, we’ve now seen the stock go from $17.50 to $25.

Carnival is now filling into the March gap, between $24.50 and $27. In doing so, it’s technically above the 100-day moving average and 38.2% retracement, although it would be a tough task for the stock to maintain above these levels given the size of the move.

One of the more bullish developments we could see now is prior resistance turning to support. While bulls won’t want to see CCL stock pull back to the $18 mark, seeing a dip to this zone where buyers step in would be bullish.

Absent a pullback, we may get a continuation. If Carnival Cruise can completely fill the gap, we need the 38.2% retracement and 100-day moving average to turn to support. Bulls will also look for a further push, likely to the 50% retracement near $30. Above that and the $32.50 to $34 area is in play.

Bulls are clearly in control of CCL stock at this point, but the move is not exactly healthy. Let’s put it this way, Carnival has rallied 220% from the lows and is still down 53.6% from the 2020 high. While the overall market has erased its year-to-date loss and reclaimed more than 80% of its peak-to-trough losses, Carnival has barely recovered 40% of its losses and is still down massively in 2020.

Final Thoughts on Carnival Cruise

The selloff seems extreme in hindsight, but there was a serious concern about the company’s liquidity. When the novel coronavirus swept through, it forced Carnival, Royal Caribbean, Norwegian Cruise Line (NYSE:NCLH) and others to dock their ships.

This shut off revenue, while customers demanded refunds and as many expenses continued. This type of headwind is practically unheard off. For all intents and purposes, these businesses suffered an overnight shift, with virtually no revenue coming in and while expenses bled away at its balance sheet.

While it’s easy to look at the charts and conclude that the selloff was an overreaction, there was true concern about these businesses. It forced Carnival to raise billions in cash with double-digit coupon bonds and a secondary offering. Obviously leveraging up the balance sheet and diluting shareholders is not the best-case scenario, but it’s far better than the worst-case scenario (bankruptcy).

I like the actions that Carnival took and America has shown an appetite to reopen and return to normalcy. That’s obvious, given consumers’ seemingly unfettered willingness to take a cruise, with Carnival’s August bookings showing strong demand.

That said, the financials are still under intense pressure, there’s still uncertainty about the cruise industry should another wave of coronavirus come sweeping through, and the stock is up more than 200%. I’d like it more on a dip than at current levels.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.


Article printed from InvestorPlace Media, https://investorplace.com/2020/06/how-much-upside-does-carnival-cruise-ccl-stock-have-left/.

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