NEW YORK ( TheStreet) -- Southwest Airlines (LUV) - Get Southwest Airlines Co. Reporttook a major beating on Wednesday. The regional airliner lost over 9% on its heaviest downside volume since mid-2011.
News of the company's plan to boost its capacity earned the airliner a downgrade from Buckingham. Investors reacted very negatively to the report, pushing LUV to a gap-lower open. The pressure remained on all session as the stock plunged below its 200-day moving average for the first time since late 2012.
The damage was widespread throughout the sector. Major airlines such as American (AAL) - Get American Airlines Group, Inc. Report, Delta (DAL) - Get Delta Air Lines, Inc. Report and United (UAL) - Get United Airlines Holdings, Inc. Report were under heavy distribution as well. UAL was the hardest-hit, losing over 10% on over four times its average trade.
Here's what The Street's Jim Cramer had to say Thursday about the sector: "Any group can rally, but after speaking with (CEO) Doug Parker from AAL, I have to be concerned that all of the estimates are too high and they have to come down, which is not an ideal environment to invest."
For Southwest bulls, it may pay to remain patient before putting money to work. The stock has been working through a narrowing consolidation pattern since late January. Following Wednesday's collapse, this formation now looks fairly ominous. The momentum unleashed will likely take some time to wear off.
A key level to watch is near $35.50. LUV topped here just before the October 2014 flush. The powerful rally that followed, which carried the stock over 65% higher by late January, received a major spark once this level cleared on Nov. 4. If the stock can base near this key zone, a recovery move may take hold.
Southwest is one of the top 10 companies in the S&P 500 expected to have the biggest earnings growth this year, according to S&P Capital IQ. Click here to read more.
At the time of publication, Morrow had no positions in the stocks mentioned.