Southwest Airlines Co (LUV) Stalls Out Near Round-Number Resistance

Southwest Airlines Co (LUV) continues to meet turbulence at the $40 mark

by Celeste Taylor

Published on Oct 11, 2016 at 11:48 AM

Southwest Airlines Co (NYSE:LUV) is on the move after the company unveiled its September traffic report. In addition, LUV stock received a mixed bag of brokerage attention. Bernstein, for instance, initiated coverage on the stock with an "outperform" rating and set its price target at $51, while Credit Suisse raised its price target to $52 from $48. Wolfe Research, meanwhile, cut its price target on LUV to $55 from $56. After a brief trek into the red in early trading, LUV was last seen up 0.1% at $39.82.

More broadly, LUV has had a tumultuous year -- down 7.5% since the beginning of 2016, and dropping 17% since hitting its year-to-date high of $48 in April. What's more, rebound attempts since late July have fizzled near the round $40 level -- with this area working to contain today's upside, as well.

In the option pits, LUV sports a Schaeffer's put/call open interest ratio (SOIR) of 0.47, which sits in the bottom 37th percentile of its annual range. In other words, traders are more call-skewed than usual toward options expiring in three months or less, and an unwinding of the hedges related to these bets could act as headwinds for the airline in the near term.

Meanwhile, short sellers have been exiting their positions, with LUV's short interest dropping 13.5% over the last two reporting periods. These bearish bets now account for a low 2% of LUV's float, and it would take just two days for traders to cover these positions, at the stock's average pace of trading -- leaving limited sideline cash available to help fuel any future rally attempts.

Finally, analysts are mostly upbeat toward the underperformer. Heading into today's trading, seven rated LUV a "strong buy," while six others named the stock a tepid "hold." Should the shares continue to struggle against the round $40 mark, a round of negative analyst attention could push Southwest Airlines Co (NYSE:LUV) even lower.

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