Carnival Has Plans to Cruise Again in August - How to Trade the Stock

Reduce holdings of Carnival on strength to the stock's quarterly and monthly risky levels at $20.76 and $23.58, respectively.
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Cruise liner Carnival  (CCL) - Get Report plans to set sail again on Aug. 1. 

The stock traded as low as $12.75 on Monday but rebounded to $14.40. Its trading well below its quarterly risky level at $20.76.

Carnival ships are on lockdown in North America and Australia through Aug. 31. 

However, eight cruises will deport on Aug. 1 from Miami, Port Canaveral, Florida and from Galveston, Texas. 

The stock opened Monday at $13.12 down 74.2% year to date and in bear market territory 74.7% below its 2020 high of $51.94 set on Jan. 17. 

The stock is also in bull market territory, 68.2% above its April 2 low of $7.80.

This extreme volatility is the reason to look at the daily and weekly charts and to be aware of the value levels and risky levels.

The stock is cheap with a p/e multiple of just 3.37 with a dividend yield of 14.36%. I do not think that this dividend can be sustained.

The Daily Chart for Carnival

Daily Xhart for Carnival

Daily Xhart for Carnival

Courtesy of Refinitiv XENITH

Carnival has been below a death cross since April 16, 2018 when the 50-day simple moving average fell below the 200-day simple moving average to indicate that lower prices lie ahead.

The stock set its 2020 high on January 17 at $51.94 and since then it cascaded lower.

Its been below its 200-day SMA since January 27. This led the stock to its April 2 low of $7.80.

The rebound since then has the stock still below its 50-day SMA at $17.24 and is well below its quarterly and monthly risky levels at $20.76 and $23.58, respectively.

Weekly Chart for Carnival

Weekly Chart for Carnival

Courtesy Refinitiv XENITH

The weekly chart for Carnival is negative but oversold with the stock below its five-week modified moving average of $16.56. 

The stock is well below its 200-week simple moving average or “reversion to the mean” at $54.19.

Its been below its reversion to the mean since the week of March 29, 2019.

The 12x3x3 weekly slow stochastic reading is projected to rise to 12.40 this week up from 11.06 on May 1. 

During the week of April 10 this reading was below 10.00 making the stock too cheap to ignore technically.

Trading Strategy: Reduce holdings of Carnival on strength to the quarterly and monthly risky levels at $20.76 and $23.58, respectively.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019 were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

Second quarter 2020 levels were set established based upon the March 31 closes. The monthly level for May was based upon the close on April 30.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.