Delta Air Lines, Inc. (DAL) flight cancellations totaled more than 5000 through Sunday evening, marking their biggest disruption since a January computer glitch left frustrated passengers stranded throughout the nation. The company blamed logistics for the public relations debacle, failing to match misplaced crews to airplanes after violent storms hit the Atlanta metropolitan area on Wednesday evening.
The timing couldn’t be worse, with Delta set to report first quarter earnings on Wednesday, April 12. Major international air carriers have lost ground in the first three months of 2017, reversing after a dramatic post-election rally ended at major resistance levels. Recent declines and breakdowns have weakened formerly strong technicals while raising odds that major players will grind out long-term topping patterns.
A controversial travel ban and intrusive security procedures at U.S. airports could undermine local tourism and international business in coming years, emptying airline seats, hotel rooms, and resort ticket counters. Market players will be watching industry guidance carefully during earnings season to gauge the early impact of these policies, with cautionary comments likely to trigger lower stock prices throughout the sector.
DAL Long-term Chart (2007-2017)
The company came public in its current incarnation in May 2007, opening at $21.75 and dropping into a sideways pattern that broke to the downside during the 2008 economic collapse. It bottomed out at an all-time low in single digits in the first quarter of 2009 and bounced with the broad market, retracing half the bear market decline into the April 2010 high at $14.94. A test at that level eight months later attracted aggressive sellers, with the subsequent pullback posting a higher low in 2011.
A slow-motion recovery wave accelerated in 2013, surging through the IPO high in a trend advance that continued into January 2015 when the stock topped out just above $51. Committed sellers then took control, grinding out a broad trading range that’s still in force more than two years later. Range support in the lower-30s has held through two volatile tests while multiple breakout attempts have failed, including failures in December 2016, as well as January and February 2017.
DAL Short-Term Chart (2015–2017)
The August 2015 mini flash crash dipped toward the deep October 2014 low in a 9-point intraday range, finding support in the low-30s ahead of a second test in June 2016, right after the Brexit referendum. Two breakout attempts into 2016 established an all-time high at $52.77, less than two points above the January 2015 peak while the run-up into 2017 met a similar fate, with aggressive sellers denying high prices.
Multiple reversals into February 2017 carved a smaller-scale rectangular range with support at $47, broken to the downside in mid-March. Price action since that time has carved a long test at the 200-day EMA, with the stock failing to attract sustained buying interest below $45. However, it’s now oversold on a daily and weekly basis, increasing odds for a positive reaction to this week’s earnings confessional.
On Balance Volume (OBV) has carved a highly bullish pattern, lifting to an all-time high in the fourth quarter of 2016 and holding that lofty level into April. This resiliency points to growing institutional and retail sponsorship, with hedge funds and 401K loading up in expectations of higher prices. As with other U.S. cyclical industries, this buying power is closely tied to expectations for lower taxes and fewer regulations under the Trump administration.
The Bottom Line
Delta has shot itself in the foot twice since January, with a computer glitch and logistical failure infuriating an already skeptical customer base. Those public relations nightmares add to a binary setup ahead of this week’s earnings report, in which an enthusiastic shareholder base will compete with multiple failed attempts to break long-term resistance in the lower-50s.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>