Delta Is Flying High Heading Into Earnings

Odds favor Delta this week with earnings in play.
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Ready or not, here comes earnings season.

Earnings season “officially” kicks off this week, bringing with it a bevy of news-filled stock moves. On balance, investors are expecting muted numbers for this round of earnings updates. According to data from FactSet, analysts are expecting a 2% dip in earnings growth for the fourth quarter.

That’s not the case with Delta Air Lines  (DAL) - Get Report. When Delta reports fourth-quarter earnings Tuesday, analysts will be looking for earnings of $1.40 a share. That represents about 8% higher earnings than the year-earlier period. It’s also a number that’s on the upper-end of the $1.20 to $1.50 a share range guided by management back in October.

Historically, Delta has a pretty good track record of performing well in reaction to its earnings calls: Shares moved higher in reaction to earnings releases in eight of the last 10 quarters.

To figure out where Delta is most likely to move on the heels of this week’s earnings call, we’re turning to the charts for a technical look.

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At a glance, the prevailing trend in Delta over the course of the last year has been hard to miss. Since the calendar flipped to 2019, shares of this $38 billion air carrier have been pushing higher in a well-defined uptrending channel.

Since October, that uptrend has been constrained in the lower-half of that trend channel. That opens the door to a meaningful move higher in the weeks ahead provided earnings don’t completely whiff this week.

When it comes to trading trend channels, the optimal strategy is buying a bounce off of trendline support - that ensures that buying pressure still exists at that key level before jumping into the position. And in Delta’s case, with shares rallying off of a higher low a handful of sessions ago it looks like as good a time as any to be a buyer.

The big question-mark now is earnings.

With a pretty tight range of analyst estimates for the quarter and a typically modest one-day price reaction, it doesn’t make a lot of sense to take the Delta trade until earnings are absorbed by the market. By doing that, investors are effectively sacrificing the potential for modest upside reaction in exchange for sidestepping substantial risk if Delta ends up missing.

With lots of room to run higher between here and Delta’s prior high-water mark from last summer, that trade-off makes a lot of sense.

If Delta posts a positive (or even mildly negative) reaction to earnings, it’s a good opportunity to get exposure to shares as this stock bounces higher within its trend channel.

On the flip-side, if shares violate trendline support down at $56, then the long-term uptrend in Delta is broken and you don’t want to own it anymore.

The odds still favor the bulls in this big airline's earnings trade this week.