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Can Royal Caribbean Rally Another 30% Despite Earnings Miss?

Royal Caribbean shares are ripping higher despite a tough earnings report. Is that the all-clear to bid the stock higher?

Is it time to rotate back into cruise stocks? That’s what investors are asking themselves as Royal Caribbean  (RCL) - Get Royal Caribbean Cruises Ltd. Report shares were rallying 10% on better-than-expected earnings.

In fact, they are wondering about a larger cohort of stocks than just cruise names like Carnival  (CCL) - Get Carnival Corporation Report and Norwegian Cruise Line  (NCLH) - Get Norwegian Cruise Line Holdings Ltd. Report. We’re also seeing strength in airlines, casinos and hospitality stocks.

While Royal Caribbean shares have jumped on the day, the company’s mixed earnings report isn’t necessarily the spark for all of these stocks.

The company saw a near-94% decline in revenue, while losing more than $6 a share. On a GAAP basis, Royal Caribbean lost $1.6 billion in the quarter. Keep in mind, just a few weeks ago cruise suspensions were extended through September as well.

Still, it’s hard to fight what we’re seeing in the tape right now, which is airline, cruise stocks and casino stocks pushing higher, regardless of the quarterly losses. What we want to know now is how sustainable is this rotation?

Trading Royal Caribbean Stock

Daily chart of Royal Caribbean stock.

Daily chart of Royal Caribbean stock.

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With Monday’s big rally, Royal Caribbean is making some notable progress on the charts. Specifically, shares are reclaiming the 20-day and 50-day moving averages and are breaking out over downtrend resistance (blue line).

From here, its price action will be interesting to watch. On the upside, we’re looking for a series of rotations, the first of which comes into play at $58.68, the July high.

If Royal Caribbean stock can rotate over and close above this mark, it puts the 38.2% retracement in play near $63. That’s followed by the June high up near $75.50, as well as the 50% retracement and 200-day moving average.

That’s the upside, now what about the downside?

It would be a rather bearish development to see Royal Caribbean stock break back below the 20-day and 50-day moving averages. If that occurs it puts the 23.6% retracement in play at $46.33, as well as range support at $45.

The $45 level and the 23.6% retracement have been solid support for the last several months, after acting as resistance in April and May. A break of this level should concern longs and a close below it will likely trigger a number of stop-losses.

I for one would not want to be long on a break of this level. In any regard, watch $58.50 to $59 on the upside. Above unlocks the potential for $63.