Delta Air Lines, Inc. (DAL) beat fourth quarter EPS and revenue estimates in Thursday's pre-market release, triggering a quick buying surge to a bull market and all-time high. The healthy results bode well for other commercial airline carriers, while underpinning the market-leading Dow Jones Transportation Average (DJTA), which is also trading at an all-time high following a 2017 breakout.

The NYSE ARCA Airline Index (XAL) has been treading water since it topped out in December 2016, but Delta's bullish results could finally end the stalemate, drawing in buying interest that brings this laggard's performance in line with other transportation sub-sectors, including railroads and packaging companies.  Even so, market players should cast a wary eye on NAFTA negotiations because treaty termination could dump the sector into a tailspin. (For more, see: 3 Short Plays If NAFTA Crumbles.)

DAL Long-Term Chart (2007 – 2018)

 

Delta's most recent incarnation began at $21.75 in May 2007, giving way to an immediate downtrend that accelerated during the 2008 economic collapse. It bottomed out at $3.51 in March 2009, with that price level marking the lowest low in its eight-year public history. A steady buying wave then set into motion, lifting into the .618 Fibonacci sell-off retracement level in April 2010. It stalled at that barrier and pulled back into 2011, posting a higher low at $6.41.

The stock returned to the 2010 high in 2013 and broke out, entering a powerful trend advance that continued into January 2015, when selling pressure increased just above $50. It broke out in the fourth quarter, but momentum failed to develop, generating a failure swing that dumped the price into the low $30s in June 2016. Four additional breakout attempts into 2018 shared a similar fate, with low volatility undermining shareholder profits.

The monthly stochastics oscillator entered a buy cycle in September 2017, with that tailwind still in force in early 2018. The indicator still hasn't reached the overbought level, suggesting that bulls will remain in control for the next three to six months. However, the trading range has been contracting for the past seven months, awaiting a major catalyst to wake up buying power.  That may have happened with this week's earnings report, but bulls will need to prove their case with a rapid advance into the low $60s. (See also: Delta Gives Massive Order to Airbus Over Boeing.)

DAL Short-Term Chart (2014 – 2018)

 

Price action since October 2014 has carved an extremely shallow 20-point rising channel. This deceptively bearish pattern has sapped buying power and undermined breakout energy, with range resistance lifting just six to seven points over a three-year period. Meanwhile, multiple reversals at resistance have hardwired this pattern, lowering the odds that it can be broken without a heavy-volume buying event.

The already narrow trading range has contracted since the middle of 2016, with 10 to 12 points now separating support from resistance. Market Wizard Linda Bradford Raschke once noted that high volatility is the only technical state that can replace low volatility, suggesting that the standoff will end with a wide-range rally or decline. Right now at least, bulls hold the major advantage.

On-balance volume (OBV) topped out in the first quarter of 2014, well ahead of price, and drifted lower into the middle of 2016. The indicator lifted to a new high in early 2017 and stalled out, drifting sideways through the entire year and into 2018. This deadlock matches price action, again highlighting the need for a high-volume buying or selling catalyst to get the stock out of this inflexible price pattern. (To learn more, see: Uncover Market Sentiment With On-Balance Volume.)

The Bottom Line

Delta Air Lines shares rallied to an all-time high in reaction to a bullish fourth quarter earnings report, but it will take unusual buying power to overcome long-term inertia and generate a strong uptrend. (For additional reading, check out: The Industry Handbook: The Airline Industry.)

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

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