This Airline Stock Could Bounce, Despite Boeing Drama

UAL shares tend to rebound on pullbacks to the 52-week moving average

Lillian Currens
Mar 20, 2019 at 12:37 PM
facebook twitter linkedin


Several airlines have felt the heat after the recent Boeing (BA) 737 MAX 8 crash and subsequent global grounding, including United Airlines parent United Continental Holdings Inc (NASDAQ:UAL). The equity has slipped roughly 12% off its year-to-date peak of $90.93, touched on Feb. 26, trading today at $80.26. The drop, however, has UAL pulling back to a key trendline that could point to a rebound on the horizon. 

The stock just came within one standard deviation of its 52-week moving average after a lengthy stretch above the trendline. United Continental stock has pulled back to this trendline 13 times in the past 15 years, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. UAL was higher three months later 67% of the time, and averaged an 11.8% gain after signals. From its current perch, a similar move would put the equity right below its February highs, at $89.73. 

UAL Chart March 20

Short sellers have been piling on amidst the airline crisis. Short interest shot up 11.3% in the last reporting period, and now covers 9.1% of the stock's available float. It would take over eight days to buy back these bearish bets, at UAL's average pace of trading -- leaving plenty of room for a short squeeze, should this technical signal once again precede a healthy rebound. 

Options traders have echoed this pessimism. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), United Continental sports a 10-day put/call volume ratio of 1.16. This ratio stands higher than 81% of all other reading from the past year, meaning traders have had a bigger-than-usual appetite for UAL puts over calls of late. An exodus of option bears could also be a boon for the airline stock.


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 

Partnercenter