Can Carnival Hold the Lows on Secondary Offering?

Carnival is raising fresh funds as it looks to increase liquidity amid the coronavirus outbreak. Here's what the charts look like for the stock now.
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Carnival  (CCL) - Get Report has found itself in a precarious place, as has Norwegian Cruise Line  (NCLH) - Get Report and Royal Caribbean  (RCL) - Get Report.

Although President Trump has expressed a desire to help the industry in this time of distress, the $2 trillion CARE Act will seemingly not lend a hand to a number of cruise operators. That’s as the companies are not based in the U.S., nor are a majority of their employees.

That’s why all three of these stocks are down more than 80% from their respective one-year highs. For Carnival, the coronavirus is forcing big changes. 

The company halted its dividend and buybacks, while raising $5.75 billion worth of various debt due in 2023 ($4 billion worth of that debt comes with a double-digit coupon). On Thursday, it was announced that Carnival will price 62.5 million shares at $8, as the company looks to raise an additional $500 million.

The secondary price is interesting as it comes just a dime above the prior 52-week low at $7.90. With shares down about 8% to $8.10 on Thursday (with a session low of $8), will this retest of the lows hold as support?

Trading Carnival Stock

Daily chart of Carnival stock. 

Daily chart of Carnival stock. 

After the debt and equity raises, there’s both good and bad news present for Carnival shares. The good news is the company has significantly bolstered its liquidity situation, buying it more time. 

The bad news is multifold. The secondary offering will dilute shareholders, while the debt offering will increase the strain on the balance sheet. Lastly, and this one is out of management’s control to a large extent, but as long as the ships remain at port Carnival will have little to no revenue or cash flow coming in. Even once it's back up and running it wouldn't be surprising to see consumers shy away from cruises for a while.

All that said, what do the charts look like? Carnival stock fell 81% in just 18 trading sessions before hitting its March low. Near that level now, buyers are praying that this $8 area holds.

If it doesn’t, even lower prices could be in store. But because the company is showing a bit of life now the stock may just fetch a bid. Up and over $10 puts $12.50 on the table. From there, it will be important to see how Carnival shares handle the declining 20-day moving average, which acted as resistance a week ago.

If the stock can clear the 20-day moving average and $15, the $18 area is the next upside target. That would be up more than 100% from current levels and is a price where the last rallied petered out. Further, it’s where the 23.6% retracement for the 52-week range comes into play.

So long story short? A close below the current low could trigger more selling pressure. A rally over $10 could spark more upside.