Travel think tank ForwardKeys advised on Monday that airline reservations to the United States have dropped significantly after a strong start to 2017. They also reported a significant decline in reservations to and from the Middle East, most likely in reaction to President Trump’s ongoing efforts to ban entry from seven Muslim-majority countries. If this bearish trend continues, many U.S. travel stocks should offer aggressive short sales in coming months.
Hate crimes against non-Caucasian foreigners as well as numerous reports of ill-advised detentions of foreign nationals at international customs arrivals are also likely to have a detrimental effect on U.S. visitation in 2017. The bearish impact to airlines, hotels and booking sites shouldn’t be underestimated, perhaps triggering the biggest revenue shortfalls since the dark period that followed the September 11th attacks.
There are two ways to approach this developing trade, depending on risk tolerance. First, aggressive market players can sell short technically strong stocks with carefully placed stop losses because no one knows how long it will take for the downside to develop, given the relentless rise since the presidential election. Second, more conservative traders can enter positions after other sellers dump prices through support levels that have triggered recent breakouts.
American Airlines Group Inc. (AAL) has emerged as the weakest player in the international air carrier segment, topping out in the mid-50s in the first half of 2015 and entering a steep correction that found support in the mid-20s following the Brexit referendum. Price action into 2017 carved a recovery wave that stalled at the .786 Fibonacci selloff retracement level, well below prior resistance.
The 200-day EMA rising from the low 40s marks a narrow line in the sand between bullish and bearish control, with a breakdown opening the door to a decline that could eventually test the 2016 low. On Balance Volume (OBV) raises additional red flags, topping out with price in 2015 and entering a persistent distribution wave that’s posted lower highs for the last two years. This signals a slow and steady exodus of institutional capital.
Marriott International Inc. (MAR) offers a double-edged short play, with heavy U.S. and international exposure. American travel overseas could also take a hit if tension escalates, generating an anti-Yankee fervor similar to other dark periods in U.S. history, including the Iraq and Vietnam Wars. However, the stock is currently trading close to an all-time high, telling us that plenty of bull energy is still guiding price development.
That will change if the current pullback cuts through the 2015 high and red line at $85. That level marks the inception point for a January 2017 breakout that reached an all-time high at $91.07 on February 16th. A selloff through that level will also violate the rising 50-day EMA, signaling a failed breakout that should attract much stronger selling pressure. First downside target following a breakdown lies at the 200-day EMA, now rising from the mid-70s.
Carnival Corp. (CCL) could also get hit with a double whammy in coming months, with fewer non-American passengers boarding ship while predominantly foreign crews face aggressive inspection at U.S. ports of call by customs officers looking for travel ban violations. This thesis dovetails with a bearish long-term technical setup that’s just now reaching a boiling point.
A broad uptrend topped out at $58.98 in January 2005, giving way to a three-year downtrend that found support in the upper teens. The recovery wave since that time reached within two points of 12-year resistance in January 2017, with that level likely to attract strong selling pressure. The first sign of growing bearish power will come when the stock fails the breakout above the December 2015 high at $56 (red line).
The Bottom Line
President Trump’s first travel ban had an immediate detrimental effect on U.S. tourist visitation, with the revised program likely to continue the growing bearish trend into 2018. A significant loss in revenue should adversely impact the U.S. tourism industry, with hotels, airlines, booking sites and cruise lines offering potential short sales.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>