Travel stocks have been obliterated in recent weeks, caught in freefalls that could eventually trigger a round of bankruptcies. Airline and cruise ship companies have taken the brunt of selling pressure, which is now expanding into lodging, casinos, and big travel portals. While there's no end in sight, long-term price patterns could offer useful road maps for bottom fishers and shareholders stuck with catastrophic losses.
U.S. airline carriers have struggled for years to book consistent profits, caught in the cross-currents of skyrocketing fuel prices, an economic collapse, and poor management. In fact, many sector charts you're looking at right now were created after major bankruptcies and mergers by carriers who couldn't survive on their own. While they've entered this crisis in excellent cash positions, it won't take long to put lethal stress on their financial operations.
Keep that mind if you're fishing for a tradable low in the airline sector in coming months. Getting caught in a bankruptcy filing can kill an investment account, tying up capital while the courts look at the facts and consider the rights of creditors. Also understand that demand may not return to pre-crisis levels after the outbreak runs its course, because business and consumer habits may be changed permanently.
For example, companies and corporations around the world have told employees to stop traveling, forcing them to utilize internet conferencing applications to conduct business. It's entirely possible that corporate bean counters discover that online alternatives provide most of the benefits of business travel at a fraction of the cost. It's also carbon-neutral, allowing them to taut their contribution in the fight against global warming.
United Airlines Holdings, Inc. (UAL) has been the sector's strongest performer in recent years, even though the stock didn't gain a penny between 2018 and start of 2020. It broke down from an 18-month trading range in January, entering a vertical decline that has now stretched into a three-and-a-half-year low. Ominously, the decline cut through the 2017 low in the upper $50s "like butter," highlighting near-panic price action that could eventually reach the 2016 low at $37.41.
Royal Caribbean Cruises Ltd. (RCL) broke out above 2015 resistance at $103 in 2016, entering a healthy uptrend that topped out near $135 in the first quarter of 2018. It failed three breakout attempts into January 2020 and entered a vertical decline after the first cruise ship quarantine. The sell-off has now reached support at the 2016 low in the mid-$60s, but the mid-$50s looks like a more logical target, with 20-year support slowing or ending the downside.
Marriott International, Inc. (MAR) held up relatively well until the Feb. 24 earnings report when the lodging giant sidestepped the outbreak by stating that guidance did not reflect the expected impact. Disappointed investors voted with their feet, hitting the exit doors in a brutal nine-day decline that has now relinquished 40 points and 28%. Distribution has been equally intense during this period, dumping the on-balance volume (OBV) accumulation-distribution indicator in a straight line.
The sell-off will complete a multi-year double top pattern when it reaches the December 2018 low at $101. That looks like a no-brainer, with Friday trading set to open around $103. A breakdown may be catastrophic for long-term shareholders, generating a measured move downside target in the upper $50s. That sounds unrealistic, but a paradigm shift in business travel would affect Marriott to a greater degree than any other hotel chain.
The Bottom Line
While there's no way to forecast a bottom in travel stocks, long-term price patterns offer clues about support levels and potential turning points.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.