United Continental (UAL) has made a steep climb from its June/July lows. Can it continue higher or is a correction looming with prices extended and momentum slowing?
In this daily chart of UAL, above, going back to last December we can see a midyear low in price, but the On-Balance-Volume (OBV) line bottomed earlier in May. A belated bullish golden cross of the 50-day and 200-day averages can be seen in early October. Prices made higher highs in November and then December, but the 12-day momentum study weakened from November to December, giving us a bearish divergence. A divergence is not a clear-cut buy-and-sell tool, but it is flashing us a warning that the advance has slowed and could even reverse.
This three-year weekly chart of UAL, above, shows a decline from early 2015 until the middle of 2016. After this decline we see a rapid recovery to a slight new high. The slope of the 40-week moving average line is positive and the OBV line has made a new high. The Moving Average Convergence Divergence (MACD) oscillator is clearly in bullish territory.
Bottom line: The media pundits are bullish, bullish, bullish about the stock market, but UAL is extended on the upside and momentum has slowed. I would not chase the long side of UAL but would rather re-book for a later flight after a correction back into the $70-$65 area.