At times like these, investors need to manage their risk, Jim Cramer cautioned viewers during his Mad Money program Thursday night. Even best-of-breed stocks can harbor more risks than investors might be aware of. Case in point: Southwest Airlines (LUV) .
Southwest is a terrific airline, Cramer said, and one that had already been suffering from Boeing's (BA) ongoing 737-MAX saga. Cramer said too many investors are hoping for a quick cure or vaccine for the coronavirus, and that makes it still too risky to buy.
He made it clear that he's not picking on Southwest. He only used it as an example. Let's check out the charts of LUV.
In this daily bar chart of LUV, below, we can see that prices "fell out of bed" this month. It was like prices hit an air pocket. LUV slumped from above $58 to (so far) around $45. Ouch. The slopes of both the 50-day and 200-day moving averages have turned negative.
The On-Balance-Volume (OBV) line has declined to a multi-month low telling us that sellers are more aggressive. The 12-day price moment study in the lower panel does not yet show a bullish divergence or the slowing of the decline.
In this weekly bar chart of LUV, below, we used four years of price data to show where the next support might develop. Prices are testing the low of late 2018 and the next support below $44 may not be until the $38-$36 area. This area is so far back in history traders may not consider it important.
Prices are below the 40-week moving average line. The 12-week price momentum line does not show any slowing in the decline yet - this could take a number of weeks.
In this daily Point and Figure chart of LUV, below, we can see a potential downside price target in the $33 area.
Bottom line strategy: We don't know how long it will take for investors to become confident buyers of LUV and we don't know how long it will take for fliers to be confident about getting on a plane. Until that happens I would not rush to be a buyer of LUV.