Cruise line stocks sunk Tuesday over fears of a new, supposedly more infectious COVID-19 mutation discovered in the United Kingdom. The development comes as a major setback for the group, which has come under pressure in recent weeks amid a spike in global coronavirus cases, leading to uncertainty about the resumption of sailings.

Key Takeaways

  • Cruise line stocks should see a recovery in 2021 as more voyages return after the widespread rollout of vaccines.
  • Carnival Corporation & Plc (CCL) stock provides a buying opportunity at $18.70, where price finds a confluence of support.
  • Royal Caribbean Group (RCL) stock encounters support around $66 from a multi-month horizontal trendline.

However, panic selling may provide a buying opportunity, given the World Health Organization (WHO) said that the Pfizer Inc. (PFE) and Moderna, Inc. (MRNA) vaccines would likely be effective against the new virus strain.

"The new COVID-19 variant is unlikely to impact near-term therapeutics, return to normal," Bank of America analyst Geoff Meacham told clients in a research note cited by CNBC. "We don't expect this new variant to derail ongoing treatment efforts – including vaccines," he added.

Below, we take a closer look at the world's two largest cruise line stocks and turn to the charts to identify possible trading plays.

Carnival Corporation & Plc (CCL)

Miami-based Carnival is a leisure travel company, operating cruises under brands such as Carnival Cruise Lines, Holland America, Princess Cruises, and Seabourn. Although the company has suspended all North American cruises until next month to ensure that it complies with the Centers for Disease Control and Prevention's (CDC) new conditional sail order, select voyages have recommenced in Europe under the Costa Cruise name. Moreover, forward bookings for the second half of 2021 are higher than normal as pent-up demand grows in anticipation of a successful vaccine. As of Dec. 23, 2020, Carnival stock has a market capitalization of $21.87 billion and is trading down over 60% on the year. However, the shares have floated 14% higher over the past month.

A recent retracement from the December high provides a buying opportunity at the $18.70 area, where price finds a confluence of support from a crucial horizontal line and the rising 50-day simple moving average (SMA). Before taking an entry, traders should consider waiting for a reversal formation, such as a bullish engulfing pattern, to confirm a shift in momentum. In terms of trade management, traders could set a stop under a period of November consolidation at $16.91 and target a move back to the early June high at $25.28.

Chart depicting the share price of Carnival Corporation & Plc (CCL)
TradingView.com

A bullish engulfing pattern is a candlestick chart pattern that forms when a small black candlestick is followed the next day by a large white candlestick, the body of which completely overlaps or engulfs the body of the previous day's candlestick.

Royal Caribbean Group (RCL)

With a market value of over $15 billion, Royal Caribbean operates cruises under the Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, and Silversea Cruises brands. The company has paused cruises in North America until March next year, after which it plans to recommence sailings through a phased return to service. In better news, the cruise giant received the green light from Singaporean authorities in October to operate voyages from the city-state, starting this month. Looking ahead, Royal Caribbean said that bookings for the second half of next year are within historical ranges, adding that 65% are new reservations, with the remainder made from future cruise credits. Through Tuesday's close, Royal Caribbean stock has slipped nearly 4% in the past month and almost 50% year to date.

After staging an impressive rally throughout November, profit-taking moved in earlier this month. Active traders should look for entry points around $66, where price encounters support from a multi-month horizontal trendline. Additionally, a decline to this area would push the relative strength index (RSI) below the oversold threshold, increasing the chance of an upside reversal. Those who take a long position should use a stop of at least 10 points and aim to book profits near the lower trendline of a previous trading range around $100.

Chart depicting the share price of RCL.
TradingView.com.

A trading range occurs when a security trades between consistent high and low prices for a period of time. The top of a security's trading range often provides price resistance, while the bottom of the trading range typically offers price support.

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