Why United Continental Holdings Inc (UAL) Could Continue to Fly High

United Continental Holdings Inc's (NYSE:UAL) chart suggests the stock could test new highs soon

Jan 20, 2017 at 10:52 AM
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Back in June, airline stock United Continental Holdings Inc (NYSE:UAL) bottomed at $37.41, and the shares have been spreading their wings ever since. In fact, UAL has roughly doubled since then, last seen trading at $74.44. Helping the shares along the way was a vote of confidence from Warren Buffett, while the company just last week raised its revenue guidance for the current quarter. Based on UAL's technical and sentiment setups, there's reason to believe the stock could continue to rally, too. 

For instance, United Continental has been consolidating since hitting an all-time high of $76.80 on Dec. 15, with a recent pullback contained by the round $70 level and the rising 40-day moving average. Looking closer, this trendline has actually been supplying support for UAL stock since its bull gap back in July. Based on data from Schaeffer's Senior Quantitative Analyst Rocky White, the shares have gone on to average a 5% gain over a five-day timeline after the last seven encounters with this moving average, closing positive 86% of the time. UAL's chart is certainly painting a bullish picture. 

Daily Chart of UAL Jan 20

And if UAL does continue to rise, it could benefit as pessimism across Wall Street unwinds. Starting in the options pits, puts have been extremely popular. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows traders have bought to open 1.21 puts for every call during the past 10 weeks -- a ratio that sits in the high 90th percentile of its annual range.

Mirroring this, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.01 is just 2 percentage points from a 12-month high, signaling a very unusual put-skew among near-term speculators. Of course, some of this put activity may be due to shareholders hedging their positions, given the stock's impressive run up the charts. 

Speaking of options data, it's an excellent time to purchase UAL options that expire within three months. For one, UAL has a Schaeffer's Volatility Index (SVI) of 31%, which ranks below 94% of all others from the past year, indicating near-term options are attractively priced, from a volatility perspective. What's more, the stock's Schaeffer's Volatility Scorecard (SVS) comes in at a near-extreme of 98, meaning the shares have tended to make bigger-than-expected moves on the charts within the past 12 months, compared to what the options market has priced in. 

If that's not enough, United Continental Holdings Inc (NYSE:UAL) could also benefit if short sellers continue to cover their positions. For instance, short interest on UAL declined by over 20% during the last two reporting periods, but nearly a week's worth of buying power is still controlled by these bears, going by average daily volumes. In other words, there's still cash on the sidelines that could come in and help lift UAL shares. 

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