Cruise line stocks experienced sharp declines at the beginning of the year, but since that time they have been under consolidation. This process has formed very distinct patterns and lines of support and resistance.
In Tuesday's session, resistance levels on the charts of Royal Caribbean Cruises (RCL) - Get Report and Carnival (CCL) - Get Report were penetrated, and now those stocks look poised to book significant profits.
The weekly chart shows very similar price action in the two stocks over the last three years, as they tracked higher above rising 40-week (200-day) moving averages. This year a large percentage of those profits were erased in just over a month, and the stocks dropped back below the long-term moving average.
Royal Caribbean shares fell 34% in the first five weeks of trading this year but found support in the $65 area. This level would prove to be long-term support as the stock made a series of lower highs and formed a large triangle pattern.
Shares of Carnival dropped 25% in that same five-week period but were able to bounce back just as quickly, nearly recovering all of the initial loss. The upside momentum failed to take the stock to new highs, however, and it pulled back and began making a series of lower highs and higher lows, forming a large symmetrical triangle.
Let's take a closer look at each stock.
On the daily chart of Royal Caribbean, the move off the February low can be seen retracing about 50% of the January drop, but it faltered and started making the lower highs that delineate the triangle downtrend line. This pattern resistance was taken out decisively in Tuesday's session, and the stock closed near the high of the day.
Moving average convergence/divergence and the relative strength index and are moving over their center lines, and the accumulation/distribution line has crossed above its signal average. These are signs of positive momentum supported by positive money flow.
The daily Carnival chart shows the wedge-like consolidation compressing the price range as it nears the pattern apex. The momentum and money flow indications are similar to those of its competitor, and the stock had a strong session on Wednesday, retaking its 200-day moving average and closing just at the triangle downtrend line.
The assumption at this point in time is that follow-through price action will take out resistance. A triangle breakout projects a target price measured by adding the height of the pattern to the breakout point, and if that objective is achieved, the stock would move to new highs.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.