Carnival Corporation & Plc (CCL) reports second quarter 2020 earnings in Wednesday's pre-market, with Wall Street analysts expecting a loss of $1.76 per share on just $737.8 million in revenue. The stock charged higher after the cruise liner missed estimates by a wide margin in March, at the end of a ferocious decline that relinquished nearly 85% of its value in just two months. The company suspended guidance at that time, advising that it couldn't provide a second quarter or fiscal year forecast due to COVID-19, which has forced cruise line shutdowns all across the globe.

Refinancing and a secondary offering have kept the devil from Carnival's door, extending its capacity to withstand revenue loss into the fourth quarter. The company has reported a sizable improvement in bookings since March, but generous cancellation policies increase the risk that customers will demand refunds if the current infection uptick marks the start of a dreaded "second wave." The company is unlikely to secure additional financing if that happens, raising the odds for bankruptcy.

The stock posted a three-month high last week and turned tail with broad benchmarks, giving up eight points in just three sessions. So far at least, the recovery wave has failed to reach the 200-day exponential moving average (EMA), which was broken on heavy volume in January. The pullback has now reached the 50-day EMA in the mid-teens, which was remounted in May. Buying interest and short covering have surged during the quarter, lifting accumulation readings to all-time highs.

CCL Long-Term Chart (1990 – 2020)

Long-term chart showing the share price performance of Carnival Corporation & Plc (CCL)

The stock rocketed higher in the 1990s, with growth underpinned by the fall of communism and opening of new tourist venues. It split twice during a dramatic ascent from the single digits into the low $50s, topping out in the second quarter of 1999. Price action completed a head and shoulders breakdown in February 2000, generating a vertical decline that found support in the upper teens in the second quarter.

Successful tests in 2001 and 2003 completed a triple bottom reversal, ahead of renewed upside during the mid-decade bull market. The rally finally completed a round trip into the 1999 high in 2004, triggering a 2005 advance into the upper $50s, followed by a failed breakout and downtrend that accelerated during the 2008 economic collapse. Selling pressure undercut the low posted at the start of the decade before ending at an 11-year low in November.

A choppy two-legged recovery wave completed a 100% retracement into the 2005 high in the first quarter of 2017, yielding an immediate breakout that posted an all-time high at $72.70 in January 2018. Trade war fears than undermined buying interest, contributing to a steady slide that initially ended at 2016 support in October 2019. The stock ticked higher into year end, reversing just above $50 and pulling back into February, when the bottom dropped out.

The downdraft broke the 200-month EMA, establishing heavy resistance near $40, and then sliced through the 2001 to 2003 triple bottom before landing on a 27-year low in the single digits. The stock has bounced back above broken support in the past three months but is trading perilously close to that contested level, raising the odds that it will resume the downtrend. In addition, the monthly stochastic oscillator has refused to cooperate with bulls, failing to enter a strong buy cycle.

CCL Short-Term Chart (2018 – 2020)

Short-term chart showing the share price performance of Carnival Corporation & Plc (CCL)

The on-balance volume (OBV) accumulation-distribution indicator plummeted to a multi-decade low during the first quarter decline and turned sharply higher, zooming to an all-time high in April. It has added to upside since that time, generating a bullish divergence with slumping price. However, OBV could be flawed in this case due to a $1.25 billion public equity offering and historic short covering by bears caught at the bottom of the decline.

The short-term uptick reversed at the .386 Fibonacci retracement level last week, highlighting resistance in the mid-$20s. It still hasn't filled the March 9 gap or reached the 200-day EMA, which is dropping through the .50 retracement. In turn, this suggests that the stock will have a hard time mounting the upper $20s while downside risk intensifies, raising the odds for a critical test at the March low. A break of that level could be catastrophic, setting the stage for potential bankruptcy.

The Bottom Line

Carnival reports earnings this week, with low expectations raising the odds for a buy-the-news reaction. However, the long-term outlook remains highly bearish, with the potential for company-crushing revenue losses.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.