To say the least, the markets have been turbulent. And embattled United Airlines (NASDAQ:UAL) shares have crashed and flown higher with the best of them. But what’s the forecast for United Airlines stock going forward? Let’s take a look at what bears and bulls are saying and doing off and on the price chart to help secure a stronger risk-adjusted determination.
The past week has proven a bumpy ride for many investors. At its worst, the S&P 500 crashed nearly 7% inside of three sessions. The market bellwether has also flown sharply higher. In fact, while the index is still underwater for the overall period, similar size gains were captured at its peak in less than two trading days.
Investors can chalk up Wall Street’s thrill ride to Federal Reserve fears, panic over the novel coronavirus and the Fed’s bond-buying program. Amid the chaos, United Airlines stock has been even more volatile.
A week ago, UAL took a 16% dive — hitting a 19% loss in intraday trading. But shares have also performed well on the upside. The stock’s trough-to-peak rally offered a dazzling return of 33% in less than three sessions. Today’s United Airlines stock is not a safe ride.
What’s Up With the Volatility?
To be fair, investors should expect the volatility in United Airlines stock. Unlike large-cap peers Microsoft (NASDAQ:MSFT) or Amazon (NASDAQ:AMZN), which are in great financial positions, United and its airline friends are struggling.
Much weaker financials combined with the grounding of air travel isn’t exactly a secret. Both remain obvious risks for United Airlines.
More than market volatility, these risks are the real reason why Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) unloaded the firm’s airline shares. Plus, United’s recently announced secondary offering is further proof that the Oracle of Omaha made the right call. But, maybe not.
Even legends like Warren Buffett aren’t always right. Moreover, there’s more than one way to skin a cat when it comes to the market. Agreeably, InvestorPlace Markets Analyst Luke Lango makes a compelling argument for why United Airlines will survive the pandemic. He also argues shared are undervalued.
And in my view, Lango’s proposal can take on even stronger risk-adjusted returns. Investors just need some help from the UAL price chart and the options market.
The Daily Price Chart for United Airlines Stock
Technically speaking, United Airlines looks ready for bullish investors. A double-bottom pattern, or a descending triangle, has developed around the 76% retracement level from UAL’s 2009 low. This pattern is giving way to an emerging uptrend.
This new sign of strength developed over the past week during the market’s brief bout of Fed-induced panic. However, United Airlines stock isn’t ready for takeoff.
There’s significant downside risk within this uptrend, thanks to a bearish stochastics crossover and volatility levels. And that’s if the framework of this trend actually holds. At the end of the day, there are no guarantees. United Airlines stock could always revisit recent lows — or worse.
How to Trade UAL
What’s the bottom line? I’m still optimistic that United Airlines stock can trade higher. And if the trend sticks, the chance of shares hitting Lango’s $64 price target increases.
But if you’re a risk-averse investor like me, take the “middle seat” between the bears and bulls. Using the December $45/$50 bull call spread looks like the smartest and most cost-effective move.
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.
