Is Delta Air Lines, Inc. (DAL) Heading to Record Highs?

An earnings beat and a bounce from a key moving average could propel Delta Air Lines, Inc. (NYSE:DAL) to record highs

by Josh Selway

Published on Apr 14, 2016 at 10:37 AM
Updated on Apr 14, 2016 at 10:45 AM

Delta Air Lines, Inc. (NYSE:DAL) is up 1.3% this morning at $48.68, after the company announced better-than-expected earnings results -- though passenger revenue declined. This should be good news for the airline stock's options traders, as bulls have had DAL in their sights in recent weeks. 

For example, DAL's 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 4.23, meaning more than four calls have been bought to open for every put during the past 10 weeks. What's more, the stock's Schaeffer's put/call open interest ratio (SOIR) is 0.40, indicating call open interest more than doubles put open interest among short-term options. In today's trading, calls are running at quadruple the usual intraday clip, and outstrip puts by a nearly 3-to-1 margin.

Among short sellers, pessimism toward the shares has been fading. Short interest on DAL fell by 13.4% during the last two reporting periods. Now, less than 3% of the stock's float is sold short. 

Meanwhile, analysts have high expectations. In fact, 88% of covering brokerage firms recommend buying DAL, and none consider the stock a "sell." Plus, the shares' average 12-month price target comes in at $63.14 -- all-time-high territory. 

A closer look at the charts shows that DAL has been mostly range-bound for more than a year. Specifically, the stock has spent a large portion of its time bouncing between $40 and $50, with the shares struggling to overcome the half-century mark -- which now may be displaying options-related resistance. A brief foray north of this range allowed DAL to notch a record high of $52.77 in mid-December, before it quickly pulled back.

More recently, Delta Air Lines, Inc. (NYSE:DAL) bounced from its 320-day moving average. Looking at the previous five times this has happened over the last three years, the stock has averaged a 21-day return of 10.7%. So, while the stock doesn't have much appeal from a contrarian standpoint -- since Wall Street's already quite bullish -- the shares' technical set-up suggests a potential push for record highs could be in store for DAL, if it can rally past the $50 level. 

Delta Air Lines Daily Chart April 14

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