Buy Carnival Stock as it Breaks Out

Carnival (NYSE:CCL) reached another milestone in its recovery on Wednesday when its price sailed through heavy resistance at $30. Chart watchers view the surge as a signal for more upside, and it’s as good a reason as any to take a fresh look at CCL stock. It has a history of rewarding traders willing to pounce on breakouts, so buying here has sound technical underpinnings.

Carnival cruise (CCL) ship on the water
Source: Ruth Peterkin / Shutterstock.com

The news has been slowly improving for the cruise industry. Carnival, Royal Caribbean (NYSE:RCL), and Norweigan Cruiselines (NYSE:NCLH) recently announced they would begin offering cruises to Alaska. And, just last week, Royal Caribbean stated it would begin test sailings out of Miami, which should pave the way for consumers looking for warmer destinations.

This is a case of the fundamentals starting to catch up to the stock’s rebound.

Remember, the stock market is a forward-looking, discounting mechanism. After the horror show last year that dropped CCL into the basement, traders began to price in the inevitable economic recovery.

The Pfizer (NYSE:PFE) vaccine played a starring role in the optimism, and short sellers have been running scared ever since. With each successive break of resistance, the pain of bears (and the pleasure of bulls) rises to new heights.

Furthermore, the hopes for a rollover and newfound downtrend dim. It’s hard to be a bear when CCL stock is sitting at a 52-week high with a tailwind.

Let’s take a closer look at the price action.

CCL Stock Chart

When time (and desired article length!) permits, it’s instructive to look at multiple time frames. While the daily view is always a staple, zooming out to the weekly provides a sense of longer-term trends and price thresholds that may not be as obvious or even visible on smaller time frames. Consider the following big-picture chart, for instance. Here’s what stands out to me.

Carnival (CCL) weekly stock chart with bullish breakout.
Source: The thinkorswim® platform from TD Ameritrade

The epic crash of 2020 shaved 84% off the price in two months. Once the last holdouts finally capitulated, a bottom was found, and the initial oversold bounce was as frisky as you’d expect. Unfortunately, the enthusiasm didn’t last, and it wasn’t until November when the Pfizer vaccine arrived that the long-term trend fully turned.

Since then, we’ve seen nothing but healthy price action. Importantly, the 20-week moving average has been providing support along the way. Bulls have behaved admirably, buying every dip and breakout along the way.

One of the silver linings of last year’s plunge is it didn’t leave much overhead resistance. It makes it that much easier for prices to continue recovering without encountering major pockets of supply.

We can better see the recent range on the daily chart. For months, prices ping-ponged between $30 and $25, frustrating directional traders along the way. The lack of momentum eventually pulled the 20-day and 50-day moving average sideways. However, if this week’s break has staying power, the neutral narrative is officially dead, and buyers are back in control.

Carnival Cruise (CCL) daily chart with bullish breakout.
Source: The thinkorswim® platform from TD Ameritrade

Two Trade Considerations

Stock traders could buy shares here with a stop below the 50-day moving average. If you want to enhance the odds of success, consider selling covered calls such as the July $34 strike.

I like longer-term bull call spreads for those seeking a more leveraged route, such as purchasing the October $30/$40 call vertical for around $2.90. The max risk is $2.90, and the max gain is $7.10.

On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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