Travel Names That Could Take Flight

 | Apr 01, 2014 | 11:40 AM EDT  | Comments
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Stock quotes in this article:

ctrp

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mmyt

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pcln

In the U.S., the travel-and-tourism industry has been one of the country's strongest sectors in recent years. Although there was a slight deceleration in growth into the end of 2013, the Commerce Department expects international travel to continue growing, particularly in the Asia and Pacific region -- and, within this area, China -- over the next several years.

Priceline.com (PCLN) has been the headliner in the travel-and-tourism sector: The shares struck a high of $1,378.96 only four weeks ago after years of steady upside action. This has placed the stock out of reach for many small investors looking to enter this sector. At the same time, it has drawn attention toward two regional travel companies: Ctrip.com (CTRP) and MakeMyTrip (MMYT).

Ctrip.com is China's leading travel booking site, while MakeMyTrip dominates in India -- and both performed extremely well throughout most of 2013. But, while the overall price action was favorable to investors last year, these stocks did not always trade in unison, and Ctrip was consistently touted as the more favorable investment. One often-cited reason was China's economic growth vs. India's slower move into cyberspace -- but the financials were another.

While Ctrip's revenue has soared on increased hotel booking and air ticketing, information from MakeMyTrip has been less transparent. This helped account for Ctrip's relative strength throughout 2013. However, one of the reasons I am not a pure fundamentalist is that, while financials can cloud an investor's judgment and leave many investing at highs, the charts can paint a clearer picture.

What that picture tells us in regard to these two companies is this: Ctrip's strength has been so widely touted that it left the company shares exhausted by October 2013. At that time the stock struck a major type of price resistance: the measured move. This price level is hit when a prices moves in a trend that is comparable to a previous movement. In this case, that prior move was the bull trend of 2009-2011. While this is very simple, and perhaps even psychological, this type of resistance is nevertheless very effective at halting a secondary trend.

Ctrip's price action has been solid, technically, ever since shares peaked in October. Two waves of selling came on the daily and weekly time frame that took it from October into the end of January -- and, if you'll notice, these two waves were also "measured" or equal, only this time it was on the downside. Shares rallied back strongly in February, then fell again in the past month. This has created a potential inverse head-and-shoulders pattern on the daily charts, with room for a second wave of upside this month.

The pattern is not perfect, however. One concern is that the high on the right side of the "neck" is higher than on the left side. This can limit the potential for a measured move as the stock emerges from the right shoulder. Another concern lies is that the right shoulder is weaker than the left -- and, finally, another concern is that the right shoulder came on somewhat higher volume than did the left. Each of these factors can increase risk and decrease gains on this strategy. However, they do not negate it.

I would look for $58 to $60 as a target zone. Ctrip may then fall into a longer period of congestion with a second monthly low before we once again see it break strongly for another monthly bull run.

Meanwhile, MakeMyTrip flew under the radar throughout most of last year, emerging nearly as an afterthought in the final quarter before shares built further strength early into this year. This may not make a lot of sense to many fundamentalists -- but, from a speculator's standpoint, it is perfectly logical. The growth potential is there, they reason, and it's only a matter of time before the fundamentals catch up. An Oppenheimer analyst apparently agrees with that notion. Despite a downgrade earlier in the year, the analyst recently upgraded the company, once again, from Perform to Outperform.

MakeMyTrip has been struggling with its own monthly resistance since early February. This price level is the middle of the corrective move in early 2011, as well as measured-move resistance, as compared with the 2010 rally and the mid-2011 rally. 

Since the stock peaked in February, however, the daily price action has been very similar to the right shoulder that has been developing in Ctrip. Over the past couple of months, both Ctrip's shoulder and the congestion in MakeMyTrip have encompassed two waves of downside. This is common for a corrective move in a trend, and it opens up the possibility of an easier breakaway move coming off the second low. The monthly price resistance in MakeMyTrip will make it more difficult to sustain a breakaway move that is greater than the last rally in last January, but not impossible. The measured move on the daily time frame places resistance at $32.28, while prior highs occur on the monthly time frame around $34.

Between these two companies, I favor Ctrip as a longer-term investor, even despite the recent relative weakness. Meanwhile, MakeMyTrip is worth continuing to follow in the shorter term. It should be noted that MakeMyTrip has recently priced a secondary stock offering at $23 per share. This will likely keep it in play over the next quarter, as well.

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