Delta Air Lines (DAL) - Get Report reported quarterly earnings before the opening bell on Thursday and beat earnings-per-share estimates for the ninth consecutive quarter. The airline picked up market share as they do not fly any of the grounded Boeing 737 Max 8 airplanes. Increased flying miles drove up costs, which caused the negative reaction to earnings. My call is to buy weakness to the stock's "reversion to the mean," which is the 200-week simple moving average at $50.44. Employ a sell stop, given a weekly close below the "reversion to the mean," as the stock would continue to lose altitude.
Other negative factors for the airline include disappointing fourth-quarter guidance and weakness in traffic from Asia caused by the trade war with China. The airline expects to hire 12,000 employees (including pilots and attendants) through 2020, so higher wages should have a negative impact on the bottom line.
Delta closed Thursday at $53.10, up 6.4% year to date and up 17.8% from its Jan. 3 low of $45.08. The stock is also in correction territory, 16.3% below its all-time intraday high of $63.43 set on July 24.
Fundamentally, Delta is reasonably priced with a P/E ratio of 8.30 and a dividend yield of 3.03%, according to Macrotrends.
The Daily Chart for Delta
Courtesy of Refinitiv XENITH
The daily chart for Delta shows that the stock began the year well below its annual risky level above the chart at $65.69. This level was determined by inputting the 2018 close of $49.90 into my proprietary analytics. The mid-year close of $56.75 was an input to my analytics and resulted in a second half pivot at $60.92, which was a magnet between July 12 and Aug. 1. This was an opportunity to book profits. The third-quarter close of $57.60 was the latest input to my analytics and resulted in its fourth-quarter risky level at $61.04 and its monthly risky level for October at $62.10.
The Weekly Chart for Delta
Courtesy of Refinitiv XENITH
The weekly chart for Delta is negative with the stock below its five-week modified moving average at $56.70. The stock is above its 200-week simple moving average or "reversion to the mean" at $50.44. This moving average held as support during the week of March 1 as a buying opportunity at $48.73. The 12x3x3 weekly slow stochastic reading is projected to drop to 34.68 this week from 40.57 on Oct. 4.
Trading Strategy: Buy weakness to the "reversion to the mean" at $50.44 and reduce holdings on strength to the semiannual and annual risky levels at $60.92 and $65.69, respectively. Employ a sell stop given a weekly close below the "reversion to the mean."
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play.
The close at the end of June 2019 established new monthly, quarterly and semiannual levels. The semiannual level for the second half of 2019 remains in play.
The quarterly level changes after the end of each quarter so the close on Sept. 30 established the level for the fourth quarter. The close on Sept. 30 also established the monthly level for October as monthly levels change at the end of each month.
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.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.