Delta Air Lines (NYSE:DAL) has been among a group of stocks that has really struggled to gain upside traction. Largely speaking, investors have been bidding up tech stocks and leaving names like DAL stock to suffer. That is, until now.
Tech stocks have been the weakest of the bunch over the last few weeks, while Delta and its peers have begun to fetch a bid. Of course, not all airline stocks are created equal, but Delta is a high-quality company.
Admittedly it’s in a tough position thanks to the novel coronavirus, but if we continue to see a rotation out of tech and into other sectors, DAL stock may be a winner. The downside risk to this take is that we could simply see a correction in tech that spreads to the entire market.
On the plus side, Delta has been doing well versus its peers. Over the past year, DAL stock is down 44%. Southwest Airlines (NYSE:LUV) is the only major carrier that has done better, down 28%.
The other three majors — American Airlines (NASDAQ:AAL), United Airlines (NASDAQ:UAL) and Spirit Airlines (NYSE:SAVE) — are all down by more than 50%.
How Far Can DAL Stock Go?
Click to Enlarge
In early to mid-August, DAL stock caught a lift, running about $7 or 26.5% from sub-$25 to almost $31 in just a few trading sessions.
Bulls thought this was the breakout they had been waiting for. After all, look at how long Delta stock has trickled lower after topping out near $37.50 in June. Unfortunately though, the stock fizzed out after its brief move above $30.
However, there was a major positive to take away from the action. Amid the move, shares reclaimed the 20- and 50-day moving averages, which then acted as support on the pullback. The stock also reclaimed then held the 23.6% retracement as support, too.
That led to a bullish setup and DAL stock has traded well as a result. Even in the face of a market decline on Sept. 16, Delta shares rallied over 3% on the day and climbed as high as $35 (well, $34.99).
Can it keep up its solid run? Perhaps. But if the market is about to start rolling over, bulls should have some concerns.
The stock is rallying into the 38.2% retracement as we speak. I believe shares can clear this area but I expect the June highs near $37 and the declining 200-day moving average should at least act as some resistance — should the stock get there at all.
Over $38 and the gap-fill up toward $42.50 is certainly in play.
What I would like from this point is a correction down to the $32.50 area or even the 20-day moving average. From there, bulls have a better risk/reward and can feel out the situation better in regard to the broader market.
A break of the 20-day is discouraging, but not the end of the world. However, a close below the 23.6% retracement will be deeply concerning, potentially putting the August low back in play at $24.38.
Breaking Down Delta Stock
Click to Enlarge
Unfortunately, I don’t know how much momentum the airline space can get without some progress in airport traffic. Thanks to the daily release of the TSA checkpoint numbers, investors know how many (or how few) passengers flew in the U.S. in the prior day.
Those numbers continue to be low, down more than 70% year-over-year.
In order to see a sustainable rally in the airline stocks, we need that number make a sustainable move higher.
While we may be waiting awhile for a catalyst, at least Delta’s balance sheet can hold its own. The company will reportedly up its bond offering to $9 billion from $6.5 billion. $9 billion is no small sum, and in fact, it will likely be the largest debt raise in the aviation industry. It speaks to what management expects from the ongoing Covid-19 saga.
CEO Ed Bastian said it will likely take a few years for a sustainable recovery. That’s not what investors wanted to hear, but it’s likely true.
Is Delta the best stock to buy, period? No. But it’s not the worst in the airline space. For now, I want to see if DAL stock pulls back and if support comes into play. If so, it may be a worthwhile long. If not, we may have to wait to get a better value.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
