Delta Air Lines (DAL) reported its latest earnings this past week, and the numbers were not shabby at all. Check out the results:
- EPS: $0.22 (Beat consensus of $0.14)
- Revenues: $9.47B (Beat consensus of $9.21B)
The good news didn’t end there. The company expects a speedy recovery from the disruption caused by the Omicron variant, and it also expects a “meaningful” profit in 2022. If the predictions are indeed correct, I can see money rotating back into the travel-related stocks after a very disappointing year in 2021. Given that, I was on the hunt to find the best trading candidate within that space and I think I have found it.
Enter Expedia, Inc. (EXPE).
Here’s a tip: This stock was selected from our Strong A/D Line watchlist, which is sent out to all the members of Accumulation every week. If you want to access the list as well, sign up and become a member today!
Unless you are a fan of range trading, EXPE was definitely a stock you wanted to avoid. It has been, and still currently is, in a long consolidation, but I am seeing many signs in the chart that would suggest the stale performance might soon be over and the stock is ready to break out.
The golden cross
I like to define my golden cross as a 50/150 moving averages crossover. And unlike most traders, I don’t use the golden cross to time my entries. Instead, I view it as a forecasting tool. Whenever the crossover occurs, I expect the stock to rally for at least several weeks.
Referring back to the chart, the golden cross showed up in early November (blue circle), but it’s fair to say that nothing positive has materialized … right? While in absolute terms, EXPE definitely didn’t make any gains since the crossover happened, but upon closer inspections, I would argue that the bulls are definitely in control here.
Notice how the stock held onto its support level at $151.70 in mid-December, which also meant it managed to make a higher high compared to the price in mid-August. So, I think the upside momentum is on EXPE’s side, and along with the golden cross, I can envision the stock to finally break out of its consolidation in the upcoming weeks.
Positive Divergences
A positive divergence occurs when the price of a stock stays flat or makes a new low while an indicator moves in the opposite direction. And once that shows up on the chart, good things tend to happen. Currently, I see this pattern happening with two of the indicators.
First, it’s showing up on EXPE’s relative strength against its travel and tourism peers. This means the company is among the leaders in the group, and that’s exactly where I want to put my money to work. But of course, the market doesn’t care about what I think. After all, it’s Wall Street that dictates the faith of a stock. So, are the big players also believing in Expedia? By looking at the A/D line, that’s certainly the case.
Despite the stock price not making higher highs, the A/D line has been in a nice uptrend. In fact, it even broke out into new highs in late December, meaning Wall Street has been busy accumulating shares — a sign of confidence that they see positive outcomes ahead. Perhaps the hedge funds also think the Omicron threat is less severe than originally anticipated? Or they think EXPE will report great numbers next month?
Honestly, I don’t have the answer to those questions, but these positive divergences definitely help build my bullishness toward the stock.
Underperformance? What’s that?
With COVID still lingering around, I understand many people remain skeptical about investing in the travel and tourism group. I am too. Having that said, it might be unfair to treat Expedia the same way as the others in the industry, because it has been acting very differently.
As stated earlier, EXPE is among the leaders in its group. More importantly, it’s even outperforming the rest of the market. Take a look at how each component has performed over the past 3 months:
- EXPE: +9.18%
- S&P 500: +5.06%
- Travel and tourism group: -5.28%
You might think differently, but to me, these numbers are convincing enough to make me want to consider EXPE as my next trade.
Fourth time is the charm?
If it isn’t obvious enough, trading requires a lot of patience. Need a friendly reminder? Just simply look at the consolidation of EXPE. During the past 9 months, it tested its resistance at $187.93 not once, not twice, but three times! Will the stock finally have enough strength to break through that level on the fourth attempt given everything I have stated before? Only time will tell.
Nonetheless, what I do know is that once that level is broken, we should expect Expedia to really take off. Based on the width of the current range, I wouldn’t be surprised to see the stock advance $35 or more. That would roughly translate to a 23% gain, at a minimum.
Of course, the key here is, again, patience. I would not consider going long on EXPE unless the stock can close above the resistance level and on strong volume. If you really want to play it safe, you might even wait the stock to retrace and retest that $187.93 level before pulling the trigger.