Technical Resistance Could Keep Lid On United Stock

Traders reacted negatively to UAL's plan to increase capacity

Feb 6, 2018 at 11:07 AM
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Airline giant United Continental Holdings, Inc. (NYSE:UAL) sold off sharply after its late-January earnings report, as traders reacted negatively to news that UAL plans to increase capacity and continue matching prices with lower-cost carriers. Following this big bear gap, the stock is now trading directly below its 10-month moving average and staring up at the convergence of its 40-day, 200-day, and 320-day moving averages in the $68 region. Additionally, UAL ended last week solidly beneath $67.51 -- the price point corresponding with a $20 billion market cap, which could exert psychological resistance going forward.

Daily Chart of UAL with 40 200 and 320 ma

This negative price action could further embolden UAL short sellers, who have been making their presence known. Short interest increased 8% in the most recent reporting period, and as this metric moves higher from lows last seen in December 2016, it could keep UAL under pressure. Meanwhile, a short-covering trend from February through November 2017 failed to boost UAL, indicating that the bears have been firmly in control on this name for a while now.

Now is a prime time to bet on additional UAL downside via the stock's put options. Schaeffer's Volatility Index (SVI) stands at 28%, in the low 28th annual percentile -- suggesting short-term options traders have priced in lower volatility expectations only 28% of the time in the past year.

Subscribers to Schaeffer's Weekend Trader Alert options recommendation service received this UAL commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.


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