Delta Air Lines (DAL - Get Report) reports earnings before the opening bell on Thursday, July 11. A positive reaction to earnings targets its semiannual risky level at $60.92 with possible upside to its annual risky level at $65.69 by year-end. A negative reaction will cause the stock to lose altitude down to its quarterly and monthly value levels at $53.25 and $52.95, respectively. My call is to countertrade this volatility.
Delta closed the first half of 2019 at $56.75, which became a key input to my proprietary analytics. The only level left over from the first half is its annual risky level at $65.69. The daily chart shows a "golden cross" and the weekly chart has been positive since the week of June 21 when the stock closed at $55.99.
Fundamentally, Delta is reasonably priced with a P/E ratio of 10.18 and a dividend yield of 2.36%, according to Macrotrends. Analysts expect the airline to earn $2.30 per share when it reports earnings before the opening bell on Thursday, July 11. Delta is the fastest growing international airline and has beaten earnings-per-share estimates in seven consecutive quarters. Delta has an advantage as it does not own any Boeing 737 MAX 8 aircraft. In addition, Warren Buffett is a major owner of this stock.
Longer term, Delta is consolidating a bear market decline of 26% from its all-time intraday high of $61.32 set on Nov. 30 to its Jan. 3 low of $45.08. The stock has been strong so far in 2019 with a gain of 18.2% year to date and up a bull market 30.8% since its Jan. 3 low.
The Daily Chart for Delta
Courtesy of Refinitiv XENITH
The daily chart for Delta shows the bear market decline of 26% from its Nov. 30 high of $61.32 to its Jan. 3 low of $45.08. Note the "golden cross" that formed on May 7 when the 50-day simple moving average moved above its 200-day simple moving average, indicating that higher prices lie ahead. This led to the stock's 2019 high of $59.99 set on July 9. A positive reaction to earnings indicates strength to the second half risky level at $60.92 and potentially to the annual risky level at $65.69, which is above the chart. A negative reaction to earnings indicates risk to the third quarter value level at $53.25 and to its July value level at $52.95.
The Weekly Chart for Delta
Courtesy of Refinitiv XENITH
The weekly chart for Delta is positive, with the stock above its five-week modified moving average at $56.67. The stock is well above its 200-week simple moving average or "reversion to the mean" at $49.79. This 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 rise to 71.90 this week up from 66.32 on July 5.
Trading Strategy: Buy weakness to the quarterly and monthly value levels at $53.25 and $52.95, respectively, and reduce holdings on strength to the semiannual and annual risky levels at $60.92 and $65.92, respectively.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, the latest on June 28. The quarterly level was changed at the end of June. 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.