Cleared for takeoff?

“Good afternoon from the flight deck, we’re experiencing a little delay…”

Over the past several months, most airline stocks have had some trouble reaching their cruising altitudes from late last year and early this year. Many of them were soaring to record highs then, including Delta (DAL), which peaked around $61 in January:

Delta Airlines (DAL), 3/19/12 – 7/10/18. Delta Airlines (DAL) weekly price chart. Layover at support?

Source: OptionsHouse

This weekly chart also shows that although 2012-2014 was the stock’s vertical ascent phase (shares more than quadrupled), DAL managed to put in new highs in each year since then; it’s currently closer to its record high than its mid-2016 low. Nonetheless, the most recent downswing took prices back to the (upper) support level defined by the November 2017 and February 2018 lows (around $48.40). The lower line marks support around the level of the April and August 2017 lows (around $43.80 - $44.60).

The downturn over the past couple of weeks may have some traders wondering whether the stock is going to take a shot at the lower support level, but the daily chart below shows how DAL has, aside from yesterday’s downturn, crept higher recently. In this case, the rebound has brought it very close to its short-term breakdown level below the March-April lows. So, is that it for the bounce?

Delta Airlines (DAL), 2/1/17 – 7/10/18. Delta Airlines (DAL) daily price chart. Current bounce.

Source: OptionsHouse

No one knows, of course, but another piece of the puzzle will fall into place tomorrow when Delta releases its latest earnings numbers. Prompted in part by rising fuel costs, in June the company lowered its guidance for the second quarter, and reaffirmed that forecast earlier this month,1  which may account for at least some of the recent negative sentiment.

But DAL has a pretty interesting historical pattern: Analysis of 31 earnings releases dating back to October 2010 shows the stock has tended to get a boost immediately around these events. Take a look at the numbers:

●The day prior to an earnings release (i.e., today), DAL closed high 65% of the time, with an average gain of 0.4%.

●On earnings day (tomorrow), the stock closed up 74% of the time, with an average gain of 2.31%. The average open-to-close move on earnings day was 1.02%.

●The stock tended to extend its gains (albeit more modestly) in the three days after earnings day, closing higher 58%, 61%, and 58% of the time, respectively, with average gains of 0.13%, 0.65%, and 0.43%.

To put those numbers into the context of the stock’s typical performance, DAL has closed up only 52% of all days since October 2010, and it’s average daily return is 0.1%. The numbers around earnings are noticeably more bullish.

In the next 24 hours or so, we should know whether the November-February support level will just be the latest stop-over on the stock’s continued tests of support, or if it will be the a runway for a new DAL takeoff.

Market Mover Update: After taking a nearly 11% hit on June 28 when (AMZN) made a move into the prescription delivery business, Walgreens Boots Alliance (WBA) had rallied more than 7.5% as of Monday.

Also, yesterday may have been a lazy day for the US market as a whole, but mid-cap stocks were busy again, as the S&P 400 Midcap Index (MID) pushed to a new all-time high yesterday—just about a month after it last hit a record peak. With a roughly 5.5% year-to-date gain, the MID trails only the Nasdaq 100 (NDX) and the Russell 2000 (NDX) among US indexes.


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1 Delta reaffirms recently lowered Q2 guidance; tumbles on Deutsche Bank downgrade (DAL). 7/3/18.