Delta Air Lines Is a Buy on Weakness
Delta Air Lines Inc. (DAL) - Get Report descended to a 52-week low of $45.08 Thursday after issuing a revenue-growth warning. Daily and weekly charts suggest that this 9% decline was too far, too fast, and a rebound is likely, going into its earnings report to be released on Jan. 10.
Delta closed Thursday at $45.61, down 8.6% year to date, and in bear market territory 25.6% from its all-time intraday high of $61.32 set on Nov. 30. The close was 4.8% above the low.
The warning by Delta was just a slowing of revenue growth not a decline! I do not view a downgrade to a 3% growth rate from a 3.5% rate worthy of a 9% decline for the stock. Analysts' are calling for earnings-per-share to be $1.25 to $1.30 when the airline reports on Jan. 10. Don't forget that fuel costs declined significantly in the fourth quarter, which should decrease costs. In the Delta warning, they also commented that both business and leisure travel was healthy in the quarter. The stock is relatively cheap, given a P/E ratio of 9.50 and a dividend yield of 2.80%, according to Macrotrends.
The Daily Chart for Delta
Courtesy of MetaStock Xenith
The daily chart for Delta shows that the stock has had a volatile ride over the last 52-weeks. When you recognize the rise and fall of altitude, the use of the 50-day and 200-day simple moving averages will not be appropriate. This is where my value levels and risky levels provide the most accurate strategy guidelines. The three horizontal lines are my semiannual pivot at $47.80, my quarterly risky level at $54.34 and my monthly risky level at $56.37. Above the chart is my annual risky level at $65.69.
The Power of the Pivot: When 2019 began, the $47.80 level was my semiannual value level. The year began with such a violent push lower that this level became a semiannual pivot. By my definition, a pivot will be a magnet for the remainder of its time horizon so in this case, until the end of June. A pivot has a high probability of being tested and this has occurred already.
The Weekly Chart for Delta
Courtesy of MetaStock Xenith
The weekly chart for Delta is negative with the stock below five-week modified moving average at $52.59. The stock has been trading back and forth around its 200-week simple moving average or "reversion to the mean" at $48.55 over the past two weeks. The 12x3x3 weekly slow stochastic reading is projected to end this week declining to 31.25, down from 40.99 on Dec. 28.
Given these charts and analysis, my trading strategy is to buy Delta at my semiannual pivot at $47.80 down to the 52-week low at $45.08. A weekly close above the "reversion to the mean" at 48.55 targets my quarterly and monthly risky levels at $54.34 and $56.37, where profits can be taken.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
