Springtime is upon us and I'm thinking many in the Northeast won't be too disappointed to see winter fade away. With a better-than-expected earnings report last week, Carnival (CCL) is taking those numbers, along with the approaching vacation season, and attempting to break out.
After a big run during the last quarter of 2014, Carnival shares have spent the first quarter of 2015 in consolidation mode. In fact, until its earnings report late last week, CCL looked like it was ready to roll over and potentially test the recent lows of $42. Friday changed all that and now we need to examine the potential for a solid breakout in this name.
The key here has been reversals. Price reversed off a potential breakdown to gap higher Friday and continue into this morning. The vortex indicator saw a similar reversal as the bullish green lined kissed the bearish red line before pushing higher again. The relative strength index (RSI) briefly dipped under 50 and now finds itself firmly in bullish territory once again. Finally, the short-term slow stochastics saw a bullish crossover come into play thanks to Friday's action.
The key appears to be $47. Anything under $47 and we are back into the $42 to $47 trading range, and with only a 2% yield, a failed breakout doesn't offer much in the way of opportunity. There really wouldn't be a reason to own this one until we saw another successful test of $42, but we are above $47. A move into the $50-$52 not only appears likely, but it looks like the minimal measurement on the current breakout.
Using the very recent support of $46, I would be willing to take this one long with a stop of $44.75 and a smaller-size position, or $45.75 with a slightly larger position. CCL does trade with a beta over 1 (1.23), so expect a little more volatility than the overall market. These stops may be a little tight, but I'd rather lean conservative on this name based on the daily chart.
I'm more drawn to the longer-term picture on Carnival, at least in terms of price pattern. When we pull back and look at the late run from last year along with the consolidation of this year, the pattern appears much more pronounced with a cup-and-handle setup. We have a run from low to high of $14, with a little over a $4 pullback based on a closing basis. Even using $14 and $5 for the measurements, we still are left with a cup depth after a run higher, which fits the cup-and-handle pattern. The handle is a bit shorter than I would like currently, but we may still be forming that over the next few weeks.
The stock is are overbought on the RSI, which hasn't worked favorably for buyers in the past although there have been periods of success while overbought. So the ideal setup here is a pullback in the RSI, but not below 50, while the price traces out a handle before pushing higher once again. However, it is not absolutely necessary, it is simply the more ideal setup. We do have a bullish vortex indicator as well as stochastics. As long as these hold, it looks like CCL could form a handle between $46 and $50 before the next leg higher, which would ultimately target $61. I do think $60+ is something of a 12- to 15-month price target, but as long as CCL holds $42, it sets up better as a long position than a short.
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