Delta Taking Off After Earnings (DAL)
Airline relative performance has split across continents in the last few years, benefiting domestic operations while international carriers struggle with weaker European economies and currency volatility that have lifted the U.S. Dollar off a 15-month low. DAL is well-positioned in this regard, with domestic and regional revenue comprising close to 70% of 2015 revenue
DAL Long-term Chart (2006 - 2016)
The stock’s current incarnation began in April 2007 when it emerged from bankruptcy in an IPO that topped out immediately in the low 20s. Two breakout attempts into year’s end failed, yielding a downtrend that accelerated lower during the 2008 economic collapse. It finally bottomed out at an all-time low just below 5 in March 2009 and turned higher in a recovery wave that stalled in the mid-teens in 2010.
It posted a double top pattern into 2011 and broke down in a modest decline that found support near 6.50. That marked the low, ahead of a steady uptick that returned to 2010 resistance in 2013, yielding a strong breakout and trend advance into the January 2015 high at 51.06. Price action since that time has carved a topping pattern with a nominally higher high at 52.77, followed by a steep decline that undercut the August low at 34.61 after the Brexit referendum.
Long-term range support is hard to centralize after deep dips in October 2014, August 2015 and June 2016. Overall, this looks like a broad rectangle pattern, bounded by support in the low 30s and resistance above 52. Finally, notice how the June swoon reached the 50-month EMA for the first time since 2013. This could mark a significant event in the intermediate correction that started in the fourth quarter of 2014.
DAL Short-term Chart (2014 - 2016)
The October 2014 low gave way to the sizable rally wave, lifting the stock 20-points in less than three months. Long positions taken near that high were subjected to months of whipsaws, followed by a failed breakout attempt in the fourth quarter, completing the outline of a double top pattern that now requires a breakdown into the 20s to set off longer-term sell signals.
The June washout low matched extremely oversold technical conditions in the daily and weekly time frames, supporting the bounce into July, but it will take significant buying power to signal a new uptrend. For now, the stock needs to deal with ample overhead supply at 40 and 44, where the broken February low and 200-day EMA will try to repeal the advance.
On Balance Volume (OBV) tilts in the bear’s favor, despite nearly three weeks of higher prices and post earnings buying pressure. The decline into June dropped the indicator back to the deep lows posted in October 2014 and July 2015 (green line), while the current advance needs to pierce the resistance at the red line to signal fresh accumulation, consistent with higher prices.
The Bottom Line
Delta Airlines has gained ground after a well-received earnings report but faces major challenges in building a new uptrend, due to the resistance between 40 and 44, as well as significant headwinds from its international hubs. Even so, the June reversal at the 50-month EMA could be significant, marking the end of the long correction.