As a point of information, DAL started trading in April 2007 generating a high of 23.25 the very first week. Since then the stock has generally been either in a downtrend or a sideways trend as never has that high been seen again. In looking at the entire chart for the time traded, the $15 has been an important pivot point but since February 2008 it has been rock solid resistance. In August 2007 the stock got down to the $15 level for the very first time with a drop to 14.94 but generated a small bounce off of that low. In December 2007 the $15 level was broken for the first time ever and on February 2008 the stock broke $15 with purpose.
During the past 5 years, DAL has been trading mostly sideways generating a $4 low (seen in Jul07 and again in Mar09) and a 14.94 high seen in Apr11. Nonetheless, most of the time the stock has traded between the $10 and $14.50 level with 14.54 being the highest level seen since Apr11.
It should be mentioned that the fundamentally speaking the airline industry has been having problems during the past few years inasmuch as good profit margins have been difficult to achieve. Strong competition, as well as high gasoline prices, have kept all airline stocks with low profit margins and in many cases with red balance sheets and DAL has not been inure to those problems. With the stock likely rallying with the help of the overall market and reaching a level of strong long-term chart resistance, as well as gasoline prices expected to rise for the summer months, it seems like a good place to take a short position on the stock.
DAL (much like the indexes) has rallied straight up for the last 12 weeks starting from the most recent low seen in November at 9.21 and from the 200-day MA, currently at 10.05. It is likely that the rally has been based on the index rally as well as from the 200-day MA being broken to the upside convincingly. Nonetheless, the stock is now reaching a level where selling of consequence is expected to be found and without any support levels built on the way up it would not be surprising if the stock fell back down to once again test the 200-day MA before traders have to make the next important decision.
To the upside, the DAL chart shows minor intra-week resistance at 14.18, decent intra-week resistance at 14.54, and decent to strong intra-week resistance at 14.96. To the downside, the stock shows very minor intra-week support at 12.87, decent intra-week support at 10.90, and decent again intra-week support between 9.21 and 9.60.
For the first time since Nov11 DAL got above the $14 level 12 days ago with a rally up to 14.11. Since then, the stock has been above $14 on 6 different occasions but has been unable to rally above 14.20 on any of those occasions. On Friday, the stock got up to 14.09 and reversed direction to close in the red and on the lows of the day suggesting that further downside will be seen this week. The 14.09 high seen on Friday will be considered a successful retest of the 14.20 high if the recent low at 13.46 is broken. If that happens, there is little to stop the stock from heading lower.
Sales of DAL between 13.80 and 13.90 and using a sensitive stop loss at 14.35 and having an objective of 10.05, will offer a 7-1 risk/reward ratio. If a stronger stop loss is desired, it should be placed at 15.35. Nonetheless, at that level the risk/reward ratio will drop down to 2-1.
My name is Tony and I am a retired chartist. I have been trading for over 36 years. In the 80's I was a broker/trader/analyst for Merrill Lynch, Dean Witter, and Pru-Bache.
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