Cruise lines and other leisure stocks have turned sharply lower in recent months, with shareholders abandoning ship due to fears of an economic slowdown. While many sector components have bounced in reaction to January effect buying pressure, broken technical patterns predict that these stocks will offer profitable short sales as soon as oversold technical readings ease and upticks reach strong resistance levels.
These are highly cyclical issues in the same way as banks and automobiles, rising and falling in reaction to economic expansion and contraction. The current bull market is nearing its tenth anniversary, much longer than prior cycles, suggesting the next downturn is right around the corner. Those fears, as well as relentless attacks on globalization and rising interest rates, could reduce profits and revenues for leisure companies well into the next decade.
Carnival Corporation (CCL) topped out in the mid-$50s in 1999 and sold off into the upper teens in 2000. Price action in the next 17 years stretched but didn't break that broad trading range, generating meager returns for long-term shareholders. The stock finally mounted resistance in May 2017 and broke out, entering an uptrend that posted an all-time high at $72.70 in January 2018, ahead of a downturn that failed the breakout in June.
Six months of testing at new resistance ended with a high-volume down gap on Dec. 20, with subsequent selling pressure reaching a two-year low at $45.64. The stock has bounced strongly in the past two weeks, reaching the top of the gap, but weekly and monthly stochastics oscillators have failed to generate new buying signals. Given this divergence, aggressive sellers may reload positions between the current level and 50-day exponential moving average (EMA) at $55, ahead of new 2019 lows.
Royal Caribbean Cruises Ltd. (RCL) topped out at $58.88 in 1999 and sold off into the single digits in 2001. It failed to break out during a mid-decade uptrend, while a downturn during the 2008 economic collapse violated the prior low by more than two points. The stock bounced back to the prior century's high in 2014 and broke out, entering a trend advance that posted an all-time high at $135.65 in January 2018.
A decline into June found support at $100, ahead of a bounce that stalled two points under the January high in September. Bearish price action broke the mid-year low in December, confirming resistance at the 200-day EMA, while a January bounce has now reached the 50-day EMA. That level, situated about seven points under the long-term moving average, could end the uptick and trigger a volatile decline that hits new multi-year lows.
Norwegian Cruise Line Holdings Ltd. (NCLH) came public on U.S. exchanges at $25.10 in January 2013 and entered a shallow uptick that reached the upper $30s in January 2014. A breakout into 2015 attracted widespread buying interest, lifting the stock to an all-time high at $64.27 at year end. It got cut in half in the next 10 months, finding support in the low $30s, ahead of a recovery wave that stalled well below the prior high in August 2017.
The stock broke down from a year-long topping pattern with support in the low $50s in June 2018, entering a multi-wave decline that hit a 52-week low in December. It has bounced with other cruise ship lines so far this January but still hasn't reached 50- or 200-day EMA resistance near $50. It will be tough to mount that price zone with accumulation readings slumping to six-month lows, suggesting that short sales will profit from continued downside that could eventually reach the 2016 low.
The Bottom Line
Cruise lines and other leisure stocks are bouncing after breaking down in new downtrends and could offer low-risk short sale entries in coming weeks. This bearish price action could last into the new decade, supporting longer-term exposure.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.