Carnival (NYSE:CCL) has been cast adrift in a windless sea. And it’s killing the appeal of doing any trading on CCL stock.
Its share price is stuck between battling narratives. Optimism surrounding what comes in 2021 and beyond is keeping bottom fishers hungry and engaged. But this summer’s surge in coronavirus cases and the uncertain timeline of when its fleet will be able to sail safely has bears pressing their bets.
Carnival Earnings Update
On Friday, investors got to take a peek behind the curtain when the ailing cruise line released its latest earnings report. The numbers were as dreadful as you’d expect given the novel pandemic’s upending of Carnival’s business model.
Revenue came in higher than expected at $740 million versus $700 million. Still, it marked a harrowing 84% year-over-year sales decline. The adjusted earnings per share was an abysmal -$3.30, missing analysts “shot in the dark” estimates of -$1.76.
Rather than obsess about the past, however, investors clung to a few silver linings from the report. Looking out to 2021, Carnival announced new bookings “remain within historical ranges.” The comment suggests the coronavirus hasn’t hurt consumer demand as much as feared.
At the same time, the company has taken drastic measures to shore up its balance sheet, lowering operating costs by north of $7 billion on an annualized basis. It’s also slashed spending by over $5 billion over the next 18 months.
But not everyone is cheering after the earnings release. Just today, Wedbush analyst James Hardiman slashed his price target for Carnival shares by 31% from $29 to $20, while keeping the firm’s “neutral” rating. Mr. Hardiman cited the “resurgence in COVID-19 cases as well as halted (and in some instances reversed) economic reopenings,” as causes for his bearish shift.
CCL Stock Charts
Analyzing news in a vacuum is foolish. Sure, you can tell on the surface if developments appear bullish or bearish. But it’s not until you combine the headlines with price analysis that things become clear. As they say, it’s not the news that matters, but the reaction to the news.
Friday’s report had enough data for both bulls and bears to cling to in support of their cause. But when you look at the price response of CCL stock, it has been uninspiring at best.
The last five trading sessions have alternated between up days and down days. It spells indecision. And it doesn’t get any better if you zoom out. The 50-day moving average is flat, suggesting the intermediate trend remains rudderless. To be fair, the short-term bias is down. So says the 20-day moving average, which has been drifting lower for a few weeks. If anyone holds the upper hand here, it’s sellers.
The challenge I have with overly bearish forecasts is that most of the bad news is known. With CCL stock some 79% off its highs, the market has done an effective job at baking in the earnings horror show. So yes, the path of least resistance is lower, but any whiff of an improving economy could spark a powerful rally.
Pick Your Spot
Traders have a few choices here. First, take the recent indecisive price action as a sign to steer clear. There are better trends to bet on than this one.
Second, go with the current trend by banking on bears. Implied volatility is pumped, so spreads are a must. Buy the September $15/$10 bear put for $2.
Third, if you want to play for a bottom down here, then at least wait for confirmation. CCL stock has been carving out lower highs for six weeks. Wait for the pattern to reverse by the stock breaking above $18 resistance. Then and only then would I entertain bullish ideas.
Tyler Craig is a member of the Chartered Market Technician’s Association and holds the CMT designation. His entire adult life has been dedicated to helping individuals learn how to trade as an elite instructor and personal mentor. To join his team and the best trading community on the planet, click here. At the time of this writing, Tyler didn’t hold positions in any of the aforementioned securities.
