Delta Air Lines Stock Could Break Major Support

Delta Air Lines, Inc. (DAL) reaffirmed first quarter profit estimates earlier this week while forecasting revenues at the high end of expectations. Projected unit growth at 5% seems reasonable, given the strong world economy and continued growth in consumer spending. Market players now await the official release on April 12, when analysts have an opportunity to grill executives on urgent short-term issues such as the company's large China exposure.

The pre-announcement had a limited impact on the stock price, which is struggling to hold support in the low $50s. That follows the bearish trajectory of rivals American Airlines Group Inc. (AAL) and United Continental Holdings, Inc. (UAL), which have underperformed since the tariff mantra began in January. Given the likelihood that trade disputes will continue through 2018, shareholders may wish to pull up stakes and rotate capital into less-exposed sectors. (See also: Why Airlines Aren't Profitable.)

DAL Long-Term Chart (2007 – 2018)

The stock's current incarnation began in May 2007 when it emerged from bankruptcy and back onto the public markets in the low $20s, yielding dull sideways action into a July breakdown that found support in the mid-teens a month later. It tested new resistance at the start of 2008 and got sold aggressively, entering a steep decline that hit an all-time low at $3.51 in March 2009. A bounce into the new decade stalled at the 2007 low, which also marked the 50% sell-off retracement level.

A 2013 rally wave finally cleared 2010 resistance, generating an exceptionally strong trend advance that reached the lower $50s in the first quarter of 2015. Aggressive sellers then hit the bids, carving a trading range and 2016 breakdown that posted a 52-week low in the low $30s following the Brexit referendum. Dip buyers then entered into control, posting a strong recovery that reached range resistance at year end.

Price action eased into a shallow rising channel at the start of 2017, with a June breakout failing to attract momentum buying interest. An uptick into January 2018 suffered a similar fate, ending before breakout buyers had time to cash in. Two-sided trading into the second quarter has knocked the stock back to 2015 levels, but the channel pattern remains fully intact. Even so, the monthly stochastics oscillator has just rung the first sell signal since October 2017, predicting that bears will control the tape into the second half of 2018.

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DAL Short-Term Chart (2016 – 2018)

Three 2015 highs carved a ragged price zone between $50 and $53 that has come into play repeatedly in the past three years. The 200-day exponential moving average (EMA) has slowly worked its way up to those levels, marking an alignment that could decide Delta's fate in coming months. The rally into January 2018 finally cleared the barrier, but the decline into February broke support once again, raising the odds that the stock is carving a long-term top.

Price action since 2016 has drawn a rising trendline that has now lifted into the same price zone, indicating that a breakdown through $50 would set off major sell signals and a quick trip down to channel support, now located in the upper $30s. That level has aligned with the .786 Fibonacci retracement level of the uptrend since 2016, offering a reward target for aggressive short sales if support breaks.

On-balance volume (OBV) has held up well since breaking out above the 2015 peak in early 2017 and posted a new high in March 2018, indicating strong institutional buying interest. However, shareholders haven't gotten paid for their efforts and could hit the exits if the stock doesn't hold support in the low $50s. Conversely, bulls need a rally that fills the January gap between $57 and $60 to generate more aggressive buying interest. (For more, see: Who Are Delta Airlines' Main Competitors?)

The Bottom Line

Delta Air Lines is struggling to hold long-term support despite pre-reporting strong first quarter results. It appears that the China trade dispute is keeping potential buyers on the sidelines, where they could stay for the rest of 2018. (For additional reading, check out: Delta's 3 Key Financial Ratios.)

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

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