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Delta Stock Looks Good, but Here’s What We Need for More Upside

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Delta Air Lines (NYSE:DAL) and its peers have been coming back to life. That only makes sense, as airline traffic has remained pretty steady even as novel coronavirus cases continue to fluctuate. DAL stock is looking better too, but investors are wondering if it can maintain momentum. 

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Source: NextNewMedia / Shutterstock.com

I think it can, and among the airlines, Delta is one that I like. It has a unique combination of balance sheet strength and expectations for a solid recovery in revenue.

Delta has several attractive catalysts, but it too is susceptible to the ebbs and flows of the industry. It comes down to one simple measure: airline traffic. Without it, the whole group will struggle for momentum. 

However, over the long-term this group is sure to recover. That’s because air travel will not disappear and that’s why I prefer sticking to the high-quality companies of the bunch. 

Breaking Down Delta Stock

Chart of TSA checkpoint numbers (daily)
Click to Enlarge

As goes airline traffic, so goes the stock prices for airlines. Delta and its peers have flirted with a few big moves to the upside, but momentum wanes each time. That’s as investors look for follow-through to some of these traffic numbers but have so far failed to get it. 

Thankfully, these are provided by the TSA, so we can get a glimpse of what’s really going on. It helps that it’s updated on a day-by-day basis, too. Above are the same numbers in chart form. 

As one can see, there was a steady rebound from the April lows. However, that momentum petered out in July, as traffic numbers plateaued. Throughout August though, there have been small peaks above what some technicians would be eager to call “resistance,” shown via a pink line on the chart. 

Those are on traffic spikes above 800,000. If we can begin to sustain above that level — which is still roughly less than one-third of year-over-year traffic — then these stocks could really begin to take off. 

For what it’s worth, in its most recent earnings report, Delta CEO Ed Bastian said it could take several years before there is a significant recovery in the airline business. Really, it will depend on how the coronavirus progresses through Q4 and Q1 next year. 

Either way, I do not view DAL stock as a multi-day or multi-week trade. I view it as a multi-year investment. It’s possible many consumers will feel iffy about a cruise. However, that fear is likely to wane over time for airlines, as it’s essential for many types of travel.

Trading DAL Stock

Daily chart of DAL stock price
Click to Enlarge

Source: Chart courtesy of StockCharts.com

The one thing the charts have lacked for DAL stock is clarity. Lately, however, there’s been more of it, which is a positive. 

At the beginning of the month, Delta flirted with a breakdown below $25 and the July lows. Ultimately, the stock held up, jumping higher and breaking out over downtrend resistance (blue line). While there was (and is) still a lot of work to be done, technically speaking, this was healthy price action. 

The latest dip has seen the 20-day and 50-day moving averages act as support, another bullish development. Now consolidating its near-10% gains from Monday, DAL stock has one of two options. 

First, it can push higher. In that case, bulls will be looking for a close over the August highs at $30.82. Above opens the door to the June highs and the 200-day moving average. On the other hand, it can move lower. On a decline, the dip again needs to be met with buyers at the 20-day and 50-day moving averages. 

Below puts the August low in play at $24.38. Below that and a gap-fill toward $23 is possible. 

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.  

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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