A Surge In Covid Cases Is Affecting August Revenue, Says American Airlines

The Coronavirus cases in the United States are rising, and it is affecting American Airlines’ revenue projection for August.

Covid Is Affecting August Revenue

American Airlines revealed earlier today that its revenue for August is lower than anticipated, thanks to the surge in Covid-19 cases across the United States. The surge in Covid cases has led to a decline in bookings, and American Airlines believe it could get worst if the situation is not brought under control.

Vasu Raja, American Airlines’ chief revenue officer, told investors that the current recovery is a choppy one for the company, and they had expected it to be that way. Vasu added that “Given the fluidity of the current demand environment, we are not ready to make definitive adjustments to our capacity plans or guides at this point in time.”

According to the chief revenue officer, American Airlines recorded a better-than-expected revenue in July. However, the increase in Covid cases across the United States has resulted in weaker near-term bookings and higher cancellations.

The delta variant of Covid-19 has been rapidly rising over the past few weeks. However, the authorities are working hard to ensure people get vaccinated over the next few months. With enough people vaccinated, airline activities could resume normally across the United States.

AAL Up By 1.5% Today

Despite the grim news from American Airlines, the company’s stock price is up by 1.5% over the past 24 hours. At the time of this report, AAL is trading at $20.15 per share. Year-to-date, the company’s stock price is up by over 30%.

AAL stock chart. Source: FXEMPIRE

American Airlines began 202 trading at $15 per share, but it has experienced rapid growth, hitting a peak of $25 per share in June. However, AAL slightly retracted in July, but it began to recover this month.

The increase in the number of Covid vaccinations across the United States is one of the key reasons for the surge in the company’s activity last month.

Southwest Airlines Lowers Q3 Revenue Guidance

Southwest Airlines Co. (LUV) is trading lower on Wednesday after warning about Q3 2021 revenue due to “close-in’ cancellations and bookings as a result of the Delta variant. The news is bearish for the broader airline industry, for two reasons. First, it tells us that leisure travelers are having second thoughts about vacations and trips to see grandma while second, it defies predictions that widespread business travel would resume in the fourth quarter.

Red Flag for Airline Industry

The airline has outperformed its peers since March 2020, with a domestically-focused schedule avoiding the gauntlet of international travel restrictions. The recovery wave reached the 2018 peak in March 2021 before reversing, unlike American Airlines Group Inc. (AAL), United Airlines Holdings Inc. (UAL), and Delta Air Lines Inc. (DAL), which stalled well below similar levels. In turn, this raises odds that rivals will follow with identical warnings in coming weeks.

According to the release, Southwest “recently experienced a deceleration in close-in bookings and an increase in close-in trip cancellations in August 2021, which are believed to be driven by the recent rise in COVID-19 cases associated with the Delta variant. Based on the assumption that COVID-19 cases remain elevated in the near-term and current revenue trends in August continue into September, the current outlook for Q3 2021 operating revenues has worsened by an estimated three to four points.”

Wall Street Asleep at the Wheel

Wall Street consensus has ignored the Delta variant, with a ‘Buy’ rating based upon 16 ‘Buy’, 3 ‘Overweight’, and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders reduce positions or move to the sidelines. Price targets range from a low of $57 to a Street-high $85 while the stock is set to open Wednesday’s session about $7 below the low target. This disconnect indicates that Main Street understands the current risks better than the analyst community.

Southwest posted an all-time high at 66.99 in December 2017 and entered a trading range that broke to the downside in February 2020, dropping the stock to a 6-year low. The subsequent uptick stalled within three points of that peak in April 2021, giving way to a correction that pieced the 200-day moving average in the 50s in July. Two tests at that level have failed while this morning’s decline is holding within a short-term trading range. Accumulation has dropped to a 52-week low, raising odds for continued downside into the lower 40s.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Stalling Signs? Taking a Look Under the Hood of US Equities

Greetings. I hope this article finds you and yours well. Today, we are taking a look at some additional market indicators and internals to get an unbiased perspective on things.

First, I want to preface things by mentioning that I am not suggesting that I am fully bearish on the S&P 500 or stocks right now. However, I am taking more of a cautious stance at the moment.

 

Figure 1 – S&P 500 Index April 15, 2021 – July 21, 2021, Daily Candles Source stockcharts.com

Nothing new to see here. Just another pedestrian pullback to the 50-day SMA and a bounce back. This pattern has repeated itself several times since the pandemic lows in the $SPX. It won’t repeat itself forever – that would be too easy.

Since it is earnings season, let’s talk earnings multiples.

Feeling bullish? It can be challenging to get excited about an $SPX at 4400 with an estimated 46.40 P/E ratio (trailing twelve months). We are in the middle of earnings season, so we will have a clearer figure soon.

Figure 2 – S&P 500 PE Ratio 1870 – July 22, 2021. Source multpl.com

Stocks are not cheap by any measure, folks. However, with easy monetary policy and low rates, this is to be expected. What could be the catalyst to derail this freight train?

How about the Dow Transports? This index used to be talked about much more frequently and is followed closely by students of Dow Theory. We just don’t hear much analysis about it on Fox Business, CNBC, or Bloomberg these days.

The Dow Transports (Dow Jones Transportation Average) $TRAN is an index comprised of 20 companies.

Here are the index components and weighting as of December 2020:

Alaska Air Group, Inc. 2.55%

American Airlines Group Inc. 0.76%

Avis Budget Group, Inc. 1.80%

C.H. Robinson Worldwide, Inc. 4.61%

CSX Corporation 4.39%

Delta Air Lines, Inc. 1.94%

Expeditors International of Washington, Inc. 4.61%

FedEx Corporation 13.10%

J.B. Hunt Transport Services, Inc. 6.70%

JetBlue Airways Corporation 0.70%

Kansas City Southern 9.73%

Kirby Corporation 2.51%

Landstar System, Inc. 6.60%

Matson, Inc. 2.79%

Norfolk Southern Corporation 11.42%

Ryder System, Inc. 3.12%

Southwest Airlines Co. 2.26%

Union Pacific Corporation 9.91%

United Airlines Holdings, Inc. 2.11%

United Parcel Service, Inc. 8.39%

Figure 3- Dow Jones Transportation Index January 4, 2021 – July 21, 2021, Daily Candles Source stockcharts.com

Here, and in contrast to the Dow Jones Industrial Average, we can see that the Transports topped back on May 10, 2021. Proponents of Dow Theory would argue that this creates a lack of confirmation and that the subsequent highs in the Dow Jones Industrial Average are not valid due to this lack of confirmation.

What could be the reason for the stall in the Transports? Input Costs? While fuel costs have risen, what about the rise in retail spending? Is the stimulus-powered consumer pocket not enough to counterbalance the rising input costs?

If input costs are the reason for the stalling, what about the other companies that rely on raw materials to make their products? Recent inflationary data has not affected these companies’ stock prices yet (for the most part).

What if the Fed eases off the gas pedal?

While it is very difficult (if not impossible) to pick market tops (and I don’t advocate trying to do that), it is wise to look at certain market indicators to get an understanding of what is going on beneath the surface.

It is easy to look at the chart of the $SPX and see that it is moving higher, from the bottom left-hand corner of the chart to the top right-hand corner. However, that does not tell the whole story of what is happening in the US equity markets.

We will be monitoring the above and previously mentioned market internals and indicators for more clues in the coming days, weeks, and months. I think it is critical to be aware of metrics such as the above as the broader indices trade near all-time highs.

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Thank you.

For a look at all of today’s economic events, check out our economic calendar.

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

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This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits’ employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.

Increase In Covid Cases Cause Airline Stocks To Plunge

The shares of some major airline companies in the United States are down at Monday’s pre-market trading session thanks to a surge in the number of Coronavirus cases in the country.

UAL, AAL And DAL All Trading In The Red

Delta Air Lines (DAL), American Airlines and United Airlines are all in a bearish mode today thanks to the news of a surge in the number of Covid cases in the United States. At Monday’s pre-market trading session, the shares of United Airlines are down by 5%, with American Airlines also down by roughly 5% at the time of this report.

UAL stock chart. Source: FXEMPIRE

Delta Air Lines is also not left out, as the stock is down by 4.1% over the past few hours. The companies’ stocks were performing excellently in recent weeks, thanks to the rapid vaccination program put in place by the Biden administration. Travel demand has increased in recent months, with the Transportation Security Administration recording over 2 million passengers at US airports yesterday. This is the highest Covid level recorded since February 2020, weeks before the pandemic hit the United States.

Delta Variant Is Spreading

The concern amongst travelers is the spread of the Delta variant of Covid-19. The Delta Covid variant has become the dominant strain in the United States, and this is affecting the broader stock market. However, travel and hospitality stocks are usually the most affected, with airlines and hotels suffering the most over the past few months.

Following the increase in the Delta variant, some regions in the United States are reinstating some of the earlier lifted restrictions. Los Angeles, for instance, has reinstated the indoor mask mandate while the Southern Nevada Health District is asking people to also wear masks indoors as the cases increase across the state.

AAL stock chart. Source: FXEMPIRE

Year-to-date, both American Airlines and United Airlines have performed excellently. AAL began the year trading at $15 per share, but it is now up by 20% and is currently trading above $18. UAL began the year trading at $41, but after a period of growth, it is now consolidating and trades just above the $43 mark.

Slide in Coronavirus-Sensitive Stocks Suggests Growing Worries over Delta Variant

Declines in the shares of companies tied to the reopening trade have broadly outpaced those of other so-called value stocks, which have been battered on worries that economic growth will be slower than expected in coming months.

Shares of cruise stocks Carnival Cruise Lines and Norwegian Cruise Line Holdings have slumped 10% and 9%, respectively, in July, while American Airlines Group dropped 4% and United Airlines Holdings was off 5%. MGM Resorts International has fallen 5.5%, while Expedia Group has dropped 1.3%.

The Russell 1000 value index, which includes economically sensitive stocks, has fallen by 0.9% in the same time frame, while the S&P 500 has risen 0.5% in July.

“There is a lot of uncertainty and I think the market is trying to add up how much risk this poses to global supply chains and activity down the road,” said Steve Englander, head of North America macro strategy at Standard Chartered.

Since July 1, a basket of coronavirus-sensitive stocks tracked by Standard Chartered is down 7.3%, and off 9.4% relative to a group of tech and other stocks that outperformed during the pandemic last year.

The yield on the benchmark 10-year Treasury note has dropped about 20 basis points to 1.29% this month and was falling for an eighth straight session, marking the longest streak since a nine-session drop that ended on March 3, 2020, as the COVID-19 pandemic in the United States was gaining speed.

The availability of vaccines – including their apparent ability to keep even those infected from developing serious complications – suggests that the extent of the shutdown measures last year to control the virus will not be required.

Still, some regions, including those without as much access to vaccines, are grappling with rising cases or putting restrictions in place. Cases are rising in places such as Spain and England, although the British government plans to reopen the economy later this month.

In Australia, Sydney has had a strict stay-at-home order in force since late last month, while Japan on Thursday declared a state of emergency in Tokyo, putting restrictions in place through Aug. 22. The pullback in coronavirus-sensitive stocks likely stems in part from concerns the variant spread could restrict travel and slow growth, said Walter Todd, chief investment officer at Greenwood Capital in South Carolina. But those stocks may have been due for a decline after such a sharp run, he said. “A lot of these stocks moved quite significantly off the vaccine news,” Todd said. “Part of this is concern about the re-emergence of this variant, but also just the fact … you are giving some back.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili, Dan Grebler and Peter Cooney)

 

Analysis: Canadian Aero Suppliers Face Labor Crunch as Travel Rebounds

By Allison Lampert

The squeeze has emerged as a warning signal for aviation’s recovery internationally and accelerates a shift in the workforce toward fast-growth sectors like electric vehicles, they said.

As suppliers in the aerospace-making hub of Quebec return to hiring mode, several interviewed by Reuters said they feared the exodus of talent could get more acute with an aging workforce and some training programs facing lower enrollment.

“Some companies are growing faster, others slower. But everyone is looking for workers,” said Suzanne Benoit, president of Quebec aerospace trade group Aéro Montreal.

Canada’s flagship business-jet maker Bombardier is experiencing a “competitive job market” as it goes back to recruiting, a spokeswoman said.

Aerospace joins a list of sectors facing challenges to adjust to the sudden revving up of the North American economy.

In the United States, statistics showing lower employment in manufacturing have raised concerns about supply constraints.

And in Canada, where lockdowns stayed in place longer, economists are predicting a rush of hiring in June.

Demand could push wages up for workers in popular categories like machinists, although some suppliers are also recruiting skilled immigrants from Mexico, Tunisia and Morocco.

Montreal, the world’s third-largest aerospace center, fears a delay in its economic recovery if jobs can’t be filled.

“The risk … is that we won’t have enough workers to carry out contracts so we will have to refuse contracts,” Benoit said.

Nancy Venneman, president of engineering firm Altitude Aerospace Canada, said pressure could pile up further in the fall when customer projects like product upgrades and aircraft modifications delayed by the pandemic return.

Aerospace was one of the world industries worst-hit by the pandemic as traffic plummeted in 2020, grounding fleets. But it has set ambitious plans to restore output in coming years.

Some suppliers for Europe’s Airbus have warned they may struggle to meet production goals.

Boeing has warned of supply constraints after a “more robust” recovery than expected.

And this week, American Airlines canceled 1% of its July flights amid a labor shortage at some hubs.

Aerospace and defense companies announced 115,089 job cuts for the U.S. market from March 2020 to May 2021, compared with 18,337 announced in 2018 and 2019 combined, according to global outplacement firm Challenger, Gray & Christmas.

SECTOR COMPETITION

Mario Sévigny, co-founder of MSB Group, which produces components for private jetmakers like Bombardier and General Dynamics Corp’s Gulfstream, said it would take six to nine months to meet a potential production increase due to scarce labor.

While a Canadian program protected some jobs by defraying part of workers’ salaries, it didn’t cover the entire amount which led to layoffs. Some local employers like a unit of Airbus criticized the level of support from Ottawa.

The Aerospace Industries Association of Canada (AIAC), which accounts for over 95% of aerospace activity in Canada, said more than half its members had to lay off employees.

Aerospace is, meanwhile, competing for young workers with fast-rising industries like electric transport.

The average age of an aerospace manufacturing worker in Canada is 54, according to AIAC.

The École nationale d’aérotechnique, Quebec’s largest aeronautics college which offers training in fields like aviation maintenance, said registrations in its three-year programs aimed largely at recent high school graduates dropped 20% for the fall 2021 session.

While aerospace has faced previous crises, the duration of COVID-19’s impact has driven workers elsewhere, Benoit said.

Some went to transport companies that make electric buses, like fast-growing Lion Electric Co and Nova Bus, a division of Sweden’s Volvo Group.

Hugue Meloche, chief executive of components maker Meloche Group which supplies the locally-produced Airbus A220 jet, needs to hire about 70 people a year over five years.

“We are losing a lot of workers who are going to other sectors that weren’t affected by the pandemic,” he said.

(Reporting By Allison Lampert in Montreal; Editing by Nick Zieminski)

Airline Bosses Call on Uk and U.s. To Lift Trans-Atlantic Travel Restrictions

After more than a year of restrictions, the CEOs of American Airlines, IAG unit British Airways, Delta Air Lines, United Airlines and JetBlue Airways Corp said high vaccination rates in both countries meant travel could restart safely.

The push for reopening trans-Atlantic routes on Monday comes ahead of meetings between U.S. President Joe Biden and British Prime Minister Boris Johnson at the G7 meeting of advanced economies later this week in Cornwall, southwest England, this week.

The pair must use those meetings to agree to restart travel, British Airways chief executive Sean Doyle said in a statement ahead of an online press conference.

“We urgently need them to look to the science and base their judgements on a proper risk analysis, allowing us all to benefit from the protection offered by our successful vaccine rollouts,” Doyle said.

Since March 2020, the United States has barred nearly all non-U.S. citizens who have been in the United Kingdom within the previous 14 days from entering the country. Most U.S. travellers visiting the United Kingdom must quarantine for 10 days upon arrival.

The need for a reopening is much stronger for Britain-based airlines British Airways and Virgin Atlantic which are not benefiting from a rebounding domestic market like their U.S. peers.

(Reporting by Sarah Young in London and David Shepardson in Washington; editing by Michael Holden)

Israel Looks to Back-Up Airport as Flight Cancellations Mount

By Sarah Young and Dan Williams

Palestinian militants have repeatedly shelled the Tel Aviv area during hostilities that erupted on Monday, raising safety concerns over Ben Gurion Airport, Israel’s main airport, and prompting it to reroute some flights to Ramon Airport, some 200 km (125 miles) to the south, which serves Eilat.

“The safety and security of our colleagues and customers is always our top priority, and we continue to monitor the situation closely,” British Airways said after cancelling its flights to and from Ben Gurion for Thursday.

Hamas militants in Gaza said they had launched a rocket at Ramon Airport on Thursday, but the Israel Airports Authority said that no rocket had struck Ramon and that it was operating as normal. The airport, which opened in 2019, can handle about 2 million passengers a year. It is connected by bus routes to the north, although there is no train service.

Its arrivals board showed several El Al Israel Airlines Ltd. flights from abroad that had been originally scheduled to land at Ben Gurion.

An Israeli official said the two airports were operating in sync. Ben Gurion was handling cargo, private and some other flights, and Ramon is “open for landing international commercial flights” and running scheduled domestic flights, he said.

Social media carried footage, purportedly taped by a passenger on an El Al flight from Brussels that was the first plane rerouted to Ramon, showing the view through the window of rockets being fired and intercepted over Tel Aviv. Reuters could not independently verify the footage.

UK-based Virgin Atlantic cancelled its flights to Tel Aviv for Wednesday and Thursday.

Spanish airline Iberia also cancelled its flight to Tel Aviv from Madrid on Thursday and back on Friday a spokeswoman said, while Germany’s Lufthansa also cancelled its flights.

“Due to the current situation in Israel, Lufthansa is suspending its flights to Tel Aviv until Friday, May 14,” the airline said.

Wizz Air said it had delayed its Thursday flight from Abu Dhabi to Tel Aviv until Friday.

Emirati carrier Flydubai said it was continuing to operate daily flights from Dubai to Tel Aviv. The airline was scheduled to operate three flights on Thursday, its website showed, while a fourth, night-time flight was cancelled.

United Airlines, Delta Air Lines and American Airlines on Wednesday all cancelled flights between the United States and Tel Aviv.

Virgin Atlantic had said earlier this week that bookings to Israel had soared 250% week on week after an announcement by Britain that Israel was on its “green list” for the reopening of overseas leisure travel during the COVID-19 pandemic.

But an explosion of violence, with fighting in Jerusalem and the Gaza Strip causing mounting civilian deaths, have made international airlines wary of the region.

Israel’s national airline El Al has said it was ready to operate additional planes to make up for shortfalls in foreign carriers.

British airline easyJet said that it was not yet cancelling its flights to Tel Aviv. Its next flight there is from Berlin and not scheduled until May 16, with a service from London Luton to Tel Aviv scheduled for May 18.

(Reporting by Sarah Young; Additional reporting by Inti Landauro in Madrid, Christoph Steitz in Frankfurt and Alexander Cornwell in Dubai; Editing by Michael Holden, Carmel Crimmins and Hugh Lawson)

Frontier CEO Says Now Making Money with Low Fares in Pandemic as Stock Debuts

By Tracy Rucinski

The airline started generating positive cash flow at the beginning of March, a key milestone for an industry that has been burning money after drastically scaling back flights last year as demand tanked.

Frontier is now benefiting from a recovery driven by domestic leisure travel, its specialty, flying more capacity this March than in the same month of 2019.

“Coming out of this, we’re in the best position we believe of anyone in the space given our concentration in the domestic leisure business and our ability to make money with low fares,” Biffle said in a virtual interview from New York.

The airline, owned by private equity firm Indigo Partners, whose managing partner is no-frills tycoon Bill Franke, is seeking to raise around $600 million from its initial public offering, its second attempt to go public.

Frontier on Wednesday priced its initial public offering of 30 million shares at $19 per share, the low end of its marketed range of $19-$21, likely underscoring the risks involved as the airline industry pulls out of its worst crisis.

Airline investments have been notoriously volatile in the past. The head of planemaker Boeing Co said on Wednesday the pace of vaccinations hold the key to the industry’s recovery to prior levels.

Environmental groups have called into question the industry’s plans for reducing emissions and say cheap fares such as those practiced by ultra-low-cost carriers over-stimulate the demand for air travel and contribute to global warming.

Frontier, now valued at about $4 billion, is offering 15 million shares, and will receive net proceeds of about $266 million, the carrier said.

It will use the proceeds, half going onto its balance sheet and half to Indigo and other selling shareholders, to fund growth and manage debt, including repaying some of the $150 million in government loans from a COVID-19 relief package.

That will help restore its balance sheet to near pre-pandemic levels and allow it to continue growing by 10% to 15% a year, Chief Financial Officer Jimmy Dempsey said.

The listing follows a stellar debut by Apollo Global Management-backed Sun Country Airlines last month.

Like other U.S. budget carriers, Frontier took on less debt and had a lower cash burn than large legacy airlines, creating a better financial position for a recovery that Biffle said is coming fast.

Frontier, with $1.25 billion of revenue in 2020, is targeting growth from all of its key U.S. cities beyond its home base Denver, where it has roughly 100 non-stop flights, including popular Florida destinations such as Orlando and Miami. It plans to open Tampa and Atlanta routes later this year.

The airline averted employee furloughs during the pandemic and was among the first to announce pilot and flight attendant hires. It expects to hire roughly 700 employees this year as it receives six new aircraft.

It hires roughly 100 employees per airplane, including mechanics and ground staff, the executives said.

Frontier has 156 aircraft on order with Airbus SE and the new jets will feature lighter-weight seats debuted last week to cut its fuel burn.

The airline generates 43% fuel savings compared with other U.S. airlines, making it the most fuel-efficient U.S. carrier, according to a Frontier statement last week.

“We live in Colorado,” Biffle said, adding: “ESG is real.”

(Reporting by Tracy Rucinski, Editing by Sherry Jacob-Phillips)

U.S. Airlines See Recovery Signs, United Expects to End Cash Burn in March

By Tracy Rucinski and Sanjana Shivdas

“I do think we’re near the end of the virtual world,” United Chief Executive Scott Kirby said at a J.P. Morgan conference.

In January, United said an average daily core cash burn of $19 million in the fourth quarter would likely continue in the beginning of 2021, with improvements dependent on a recovery in demand.

Now it expects core cash burn to be positive in March, Kirby said. That is expected to continue after March, assuming the current bookings trajectory remains in place, he said.

Chicago-based United, which had been among the most pessimistic of the airlines heading into the pandemic a year ago, is the first to say it could hit the industry’s cash burn milestone.

Shares of United surged 9% to $61.49 in morning trading. The Dow Jones U.S. Airlines Index was up 5%.

Delta Air Lines, Southwest Airlines and JetBlue Airways each said first-quarter revenue would decline at the low end of projections or less than previously forecast as vaccine rollouts accelerate and more people plan vacations or visits to friends and relatives

Delta CEO Ed Bastian, speaking at the same conference, said there are “real glimmers of hope” and that he was “cautiously optimistic” that the airline could halt its cash burn this spring.

More than 1.3 million passengers were screened in U.S. airports on Friday and Sunday, according to Transportation Security Administration data, the highest number since the pandemic crushed air travel in 2020.

Delta, which said it will use cash for aircraft purchases in the second quarter, expects its first-quarter revenue decline to be at the low end of its forecast for a 60% to 65% decline from the same quarter in 2019, before the onset of the pandemic.

Southwest forecast lower cash burn in the first quarter on Monday and a lower decline in operating revenue for February and March than previously forecast.

JetBlue also forecast a slowing pace in its first-quarter revenue drop, projecting a decline of between 61% and 64%, compared with the same period in 2019. It had previously forecast a fall in revenue of 65% to 70%.

American Airlines, the most leveraged U.S. airline, also said on Monday that bookings had increased but did not provide concrete guidance. However, its CEO said the company is not looking to raise any more financing after a $10 billion debt deal last week.

(Reporting by Tracy Rucinski and Sanjana Shivdas; Additional reporting by Ankit Ajmera; Editing by Louise Heavens, Paul Simao and Jonathan Oatis)

Revisiting Our October 23 Four Stocks To Own Article – Part I

Just before the US Elections, we authored an article related to four stocks/sectors that we thought would do well immediately after the November 2, 2020 elections.  The article highlighted how sector rotation in almost any market trend can assist traders in finding solid trading triggers.  We picked four stocks from various sectors for this example:

AAL American Airlines Travel/Leisure
ACB Aurora Cannabis Cannabis
GE General Electric Industrial/Specialty Industry
SILJ Junior Silver Miners ETF Precious Metals Miners

When you review my article from October 23 and the November 6 follow up article related to these stock picks, you will quickly see that all of these stocks exhibited similar types of technical patterns.  They were all bottoming in an extended rounded bottom formation and had all started to near a Pennant/Flag Apex in price.  Additionally, many of them, with the exception of SILJ, had set up a very clear RSI technical divergence pattern over the course of setting up the extended bottom in price.

My research team and I selected these stocks because of key expectations related to the post-election mentality of investors related to various sectors.  First, the cannabis sector had a number of new US states approve cannabis legislation – providing for an expected increase in business activity for the entire cannabis sector.  Second, no matter who won the election, another round of stimulus was likely to be approved resulting in increased economic opportunity for companies like GE and AAL.  The Travel and Leisure sector still had its risks as a surge in COVID cases could greatly disrupt future travel expectations.  Junior Silver Miners was our “hedge trade”.  If none of these other stocks started to rally, then Silver Miners would likely move 15% to 20%+ higher over time.

We thought it would be a good time to check in with our picks to share the importance of using sector trends to your advantage.  Currently, there are dozens of sectors that are either in a solid bullish trend or are shifting into new bullish trends.  Being able to catch these setups early and having the confidence to act on these trends is very important. We highlighted some of these setups in our October 23 article, but they happen all the time in various market sectors.

What is important is being able to see the setups, identify the sectors that have the strongest capability for future trends, then determining if you should trade the Sector ETF or some individual stocks within that sector.  Generally, the Sector ETFs provide enough liquidity and opportunity that you don’t need to worry about the individual stocks.  Yet, sometimes, applying the same techniques to the strongest sector stocks can add a very valuable component to your trading.

Below, we have highlighted the accomplishments of each stock symbol over the past 60+ days.  For this example, we will estimate a $20k allocation for ALL TRADES ($5k each) and use a simple 33% target allocation for Target 1, Target 2, and the Trailing Remainder.  That means, we take 33% of the position off at Targets 1 and 2, then let the remaining 33% trail with a protective stop.

Symbol Entry Price Target 1 % Target 2 % Last Price %
AAL $12.60 39.81% NA 22.44%
ACB $4.68 124.35% NA 114.72%
GE $7.63 22.77% NA 48.56%
SILJ $14.68 NA NA 10.11%

Our $20k sample account would look something like this right now…

Symbol Entry Price Target 1 $ Target 2 $ Last Price $
AAL $12.60 $656.87 NA $6,408.61
ACB $4.68 $2,068.28 NA $10,802.59
GE $7.63 $375.71 NA $6,995.44
SILJ $14.68 NA NA $5,505.50
Total => $29,712.14

Overall, this represents a +48.5% net account profit in just over 60 days by focusing on sector trends and rotations.  In the future, if any of our higher Target levels are reached, we’ll pull another 33% of these trades and lock in these gains while we let the remaining position carry forward with a trailing stop.  The trailing stop should be based on the last completed target level reached.  For example, if Target 1 is reached, then the stop should be placed just below the Entry Price level.  If Target 2 is reached, then the stop should be placed just below the Target 1 level and it should begin to trail higher as new price highs are reached.

Usually, we will pick an exit price level based on some type of trend failure or reversal point.  In most cases, this happens when the longer-term (Weekly based) moving averages change direction and price activity displays a clear technical pattern showing the bullish trend has ended.  Most traders are capable of determining their own exit points using technical indicators and other tools as they wish.

When some sector is trending very strongly, we don’t want to attempt to second guess the peak level or end of the trend.  We just want to ride that trend for as much profit as we can – unless some other sector sets up a new opportunity where we can better deploy our assets for profits. We like to let the trend work itself to an eventual end and use our Target Levels to lock in gains along the way.

American Airlines Trade

The following Weekly chart of American Airlines (AAL) highlights the simple trade we suggested on October 23, 2020.  As you can see, the upward sloping lows in price aligned with the upward sloping RSI trend (in the lower pane).  AAL has reached our first target level (the MAGENTA line) and has recently settled near $15.13.  Our stop level should be just below our entry price level, near or below $12.60 at this time as we wait to see how the bullish trend continues.

In Part II of this article, we’ll go over the remaining three stock symbols we initially suggested on October 23, 2020 and highlight even more details related to sector trending.

Many years ago I was researching Japanese Candlesticks and the teaching of Seiki Shimizu (The Japanese chart of charts: Shimiz) settled well with my thinking.  In his writing, he suggests that more than 60% of the time traders are waiting for new setups/trades.  This is something that many traders need to fully understand in order to balance aggressive trading tendencies with their abilities to create profits and protect assets.

If this theory is correct, then trades only need to focus on the 30% to 40% of any 12-month span of time  (three to four months) where the bigger sector trends/trades setup and initiate.  Otherwise, these trends may continue, in some form, over the remainder of the time to generate profits (or not).  This type of thinking suggests that traders only need to focus on the best immediate setups in any market trends/sectors and ignore the “froth” in the markets on a day-to-day basis.  Doing so will allow most traders the freedom to create profits by taking skilled and effective entry triggers while being able to enjoy life, family, and other hobbies.

Trading does not need to be a full-time, 24/7 effort.  The global markets generate big sweeping sector trends sometimes 2 to 4 times a year as capital moves in and out of various trend cycles (short, intermediate, and long term).  All we have to do is find the best sectors to trade, then wait for the trigger/entry setup. Now, imagine what it would be like if you could accomplish something like this every week or month with technology? You can with my BAN Trader Pro strategy and Hotlist.

BAN Trader Pro can help you identify and trade the Best Asset Now.  The BAN Hotlist helps us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to profit from sector rotation with my strategy. You can sign up here for my 100% educational webinar for free.

For a look at all of today’s economic events, check out our economic calendar.

Have a great week!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

United Airlines Warns Of Rising Cancellations

United Airlines Holdings Inc. (UAL) reduced guidance on Thursday, noting a deceleration in bookings and increase in cancellations as a result of the surging COVID-19 pandemic. Major airline carriers had booked stronger-than expected traffic over the summer months, as the virus faded from the front pages in most parts of the world. Several CEOs upwardly revised dismal forecasts during that period, allowing complacency to overcome common sense.

Business Travel Will ‘Go Away’

Former Microsoft Corp. (MSFT) Bill Gates put a damper on Boeing Co. (BA) and the airline sector on Wednesday, declaring that 50% of business travel will ‘go away permanently’ because of technology like the virtual meeting software offered by Zoom Video Communications Inc. (ZM). He also predicted 30% of people will be working from home in the long-term, allowing corporations to become leaner and meaner, with fewer-owned properties and multiyear leases.

United Airlines now expects fourth quarter capacity to drop ‘at least’ 55% compared to same quarter in 2019. It also guided for a 67% reduction in revenue, below prior forecasts. The company will also burn cash at a faster rate, eating up approximately $15 million to $20 million, plus $10 million of average debt principal and severance payments per day. None of these forecasts bode well for Delta Air Lines Inc. (DAL) or American Airlines Group Inc. (AAL).

Wall Street And Technical Outlook

Wall Street consensus has deteriorated in recent months, now standing at a neutral ‘Hold’ rating based upon 5 ‘Buy’, 7 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $32 to a Street-high $54 while the stock is set to open Thursday’s U.S. session right at the median $41 target. Capacity news and vaccine updates should drive price action into 2021 with this mid-range placement, suggesting limited upside.

The stock posted an all-time high at 97.85 in 2018 and entered a narrow consolidation that broke to the downside in February 2020, also breaking multiple support levels going back to 2013. The 2016 low in the upper 30s is now getting tested while continued upside will run into a buzz saw of resistance in the 50s, where the 2017 low and 200-week moving averages are narrow-aligned. On the downside, bears will gain control of the tape if a selloff pieces rising 2020 lows near 30.

For a look at all of today’s economic events, check out our economic calendar.

Pfizer Vaccine Breakthrough Boosts Markets

Pfizer And BioNTech Report Great Results From Their Large-Scale Study Of COVID-19 Vaccine

S&P 500 futures have recently received a major boost after Pfizer and BioNTech COVID-19 vaccine was found to be more than 90% effective in the first analysis of the large study.

Vaccine news provided significant support to stocks, and S&P 500 futures are gaining more than 4% in premarket trading. Not surprisingly, shares of vaccine developers are gaining a lot of ground ahead of the market open – Pfizer shares are up by 12% while BioNTech stock is up by more than 23%.

Meanwhile, WTI oil managed to return back above the $40 level as vaccine news increased hopes for a successful rebound of oil demand. At the same time, precious metals like gold and silver are under pressure as traders dump safe haven assets amid optimism about the vaccine.

Stay-At-Home Stocks Suffer On Vaccine News

While the vaccine news are positive for most stocks, shares of some companies are under major pressure in premarket trading.

Zoom and Peloton, which were one of the major winners during the pandemic, are down by almost 13%, and even Amazon is under pressure in premarket trading. As a result of the pressure on stay-at-home stocks, the tech-heavy Nasdaq is set to open higher by a modest 0.5%.

It remains to be seen whether vaccine news will trigger a real rotation from tech stocks into more cyclical stocks, but stay-at-home stocks will certainly have a very challenging trading session today.

Airline And Cruise Line Stocks Jump In Premarket Trading

Today, investors look ready to bet on beaten stocks like airlines and cruise lines. For example, American Airlines Group is up by 25% while Delta Air Lines  is gaining 18% in premarket trading.

Investors are even more optimistic about cruise lines like Carnival Corp. or Norwegian Cruise Line Holdings as an effective vaccine against COVID-19 may make the difference between bankruptcy and profitable business for these companies.

Traders should expect plenty of volatility in these stocks in the upcoming trading sessions as the market will try to find new price levels which take vaccine news into account.

For a look at all of today’s economic events, check out our economic calendar.

Four Stocks To Consider Buying Before The US Elections

Our research team put together this list of stocks to help you understand how to attempt to target strategic gains between now and 30 to 60 days after the elections. If you have not been paying attention to what is happening in the markets right now, be sure to read to the end of this report.

If you have not already prepared for the election event, and the pending chaos that is likely to happen after the elections, you better start doing something to protect your portfolio right now. Leaving your portfolio exposed in the moderate to high risk sectors in your IRA or 401k could result in some wicked risks to your total capital if you are not cautious.

ARE YOU READY FOR A VOLATILTY SPIKE AND THE RISKS TO YOUR PORTFOLIO?

Personally, I’ve been getting calls from my family and friends over the past few weeks urgently asking me “what should I do with my retirement money?” and “how should I protect my assets before the elections?”. My family knows if they do nothing to protect their capital, the could be exposed to a -20% or -30% draw down if the market moves lower after the election. We don’t know of anyone that wants to ride out another -20% to -30% correction in the markets – right?

Well, if you are interested in taking a small portion of your capital and attempting to profit from these four simple stock picks we’ve identified, you may feel quite a bit better about how you managed your capital throughout the election event and over the next 30 to 60+ days.

First off, each of these symbols targets key benefits we believe will take place (or have a moderately high likelihood of taking place) after the elections. Secondarily, each of these symbols has setup a very clear technical pattern that suggests “the bottom is in”. Lastly, we’re only including FOUR symbols that we feel are properly hedged for risk – we’ll explain everything in more detail as we go through each symbol. Each of these chart will show very clear support levels in BLUE on each chart. Use your best judgment to identify proper stop levels for each of these setups. You must allow room for the trade to mature and initiate a rally attempt in order to secure the profit potential. It should be fairly easy to see the opportunities in each of these picks. Let’s get started.

American Airlines: AAL Weekly Chart

Airlines are going to benefit from the stimulus package that will be secured shortly after the elections. One way or another, the US government must support essential transportation services through any extended economic shutdown or further COVID economic collapse. There will be some rescue package for the airline sector, we believe, within 30 days after the elections.

The basing support level, shown by the lower BLUE line on this Weekly chart, highlights the upward price trend that we believe support another attempt at a price breakout (higher). We believe the news of a stimulus package that supports an Airline rescue plan will prompt a moderately strong upside price move that could target +35% to +65% levels from the current $12.72 price levels. Ultimately, key resistance exists near the $28.50 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Aurora Cannabis: ACB Weekly Chart

The cannabis sector may benefit from a change at the state and local government level. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher). We believe the potential for ACB to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +115% to +235% levels from the current $4.88 price levels. Ultimately, key resistance exists near the $32.76 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

General Electric: GE Weekly Chart

General Electric Company may benefit from any new infrastructure plans related to new policy/plans on the federal/state level. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher). We believe the potential for GE to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +25% to +55% levels from the current $7.39 price levels. Ultimately, key resistance exists near the $18.05 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Silver Miners Juniors: SILV Weekly Chart

Junior Silver Miners are the “Hedge Trade” component for this simple portfolio. We believe Silver and Silver Miners will initiate a new upside price rally very shortly after the US elections and we believe this trade is an efficient “hedge” to the risk associated with the other three symbols in this simple portfolio. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher).

Silver miners should perform well once the price of gold starts a new uptrend and starts to rally towards $2200 price level. Fibonacci extension measured moves allow you to forecast where gold should rally to next as shown in this Sept 23rd article. We believe the potential for SILJ to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +35% to +65% levels from the current $14.98 price levels. Ultimately, key resistance exists near the $32.95 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Concluding Thoughts:

We hope you find the value in these four simple picks we have presented and understand how you can help to protect your investment portfolio by allocating a small portion of your portfolio into these opportunities. There is no guarantee that these picks will rally as we expect. There is no guarantee that the COVID-19 infections won’t skyrocket again – potentially shutting down the global economy again. You have to use your skills and abilities to manage these trades ON YOUR OWN. We are just showing you four potential trade setups that we believe have a strong likelihood of initiating an upside price move near or after the US elections. We hope you strongly consider the message we are trying to convey to you – protect your assets and prepare for extended volatility.

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen

Chief Market Strategies

www.TheTechnicalTraders.com

 

US Stock Market: Investors Dumping Overpriced Tech Stocks, Rotating into Undervalued Cyclical Stocks

The major U.S. stock indexes plunged on Thursday as investors continued to shed high-flying tech shares due to mixed earnings reports and growing signs of a worsening coronavirus pandemic, which could drive the economy into a deep recession. The price action also suggests that investors continued to dump overpriced tech stocks, while rotating into undervalued cyclical stocks.

In the cash market on Thursday, the benchmark S&P 500 Index settled at 3235.66, down 40.36 or -1.34%. The blue chip Dow Jones Industrial Average finished at 26652.33, down 353.51 or -1.41% and the technology-based NASDAQ Composite closed at 10461.42, down 244.71 or -2.58%.

Stock Index Recap

The bellwether S&P 500 snapped a four-day winning streak with its biggest daily percentage drop in nearly four weeks. All three major U.S. stock averages lost ground. The S&P 500 Index, the Dow and the NASDAQ Composite were mostly dragged down by shared components Apple and Microsoft Corp. Heavyweight Amazon.com was also a major drag on the tech-driven NASDAQ.

The Russell 2000 and the S&P Smallcap 600, both small cap indexes, outperformed the broader market.

Earnings Update

Second-quarter reporting season is in full-stride, with 113 S&P 500 constituents having reported. Refinitiv data shows that 77% of those have beaten expectations that were extraordinarily low. Analysts now see aggregate second-quarter S&P earnings plummeting by 40.8%, year-on-year, per Refinitiv, Reuters reported.

Microsoft Corp shares fell after reporting its cloud computing business Azure reported its first-ever quarterly growth under 50%.

Tesla Inc reported a profit for the fourth straight quarter, setting the company up for inclusion in the S&P 500. But the stock slid as analysts questioned whether the electric automaker’s stock price matched its performance.

Twitter Inc advanced after reporting its highest-ever annual growth of daily users.

American Airlines Group Inc jumped after announcing it would rethink the number of flights to add in August and September. Also, it reported an adjusted loss per share of $7.82.

Southwest Airlines said Thursday it lost $915 million in the second quarter compared with $741 million in net income a year earlier and warned that travel demand will likely remain depressed until there’s a vaccine or treatment for the coronavirus.

Economic Data and Fiscal Stimulus Bill Update

The number of Americans who filed for unemployment benefits rose more than expected last week as the coronavirus pandemic inflicted more damage to the U.S. economy.

The Labor Department said Thursday initial jobless claims came in at 1.416 million for the week-ending July 18. Economists polled by Dow Jones expected 1.3 million.

It was the 18th straight week in which initial claims totaled more than 1 million, and it snapped a 15-week streak of declining initial claims.

The number excludes recipients of Pandemic Unemployment Assistance, set to expire on July 31.

Meanwhile, Congress kept working to pass new stimulus before that deadline continued, with Senate Republicans announcing they could present their version of the bill to Democrats as early as this week.

For a look at all of today’s economic events, check out our economic calendar.

European Markets slip Ahead of the ECB

China Q2 GDP showed a 11.5% rebound, more than reversing the -10% fall in output seen in Q1, suggesting a nice v-shaped recovery in economic activity. The annualised number recovered to 3.2% from -6.8%.

If you had any doubts about the accuracy of China’s GDP numbers before this morning’s announcement, these figures only serve to reinforce that scepticism, as they appear to completely diverge from most of the data that has come out of China since April. In terms of the trade data, both imports and exports have been weak, while retail sales have also struggled.

Retail sales have declined in every month, by -7.5%, -2.8% and -1.8% in June, and with the Chinese consumer now making up around half of China’s economic output, I would suggest these numbers in no way reflect the real picture regarding China’s economy at this moment.

After yesterday’s strong session, markets here in Europe have taken their cues from the weakness in Asia markets and opened lower, as some of the vaccine optimism of yesterday starts to taper off.

On the results front Ladbrokes and Coral owner GVC Holdings have fallen back after reporting a decline in group net gaming revenue of 11%, in the first half of the year, largely down to the suspension of sporting events. The biggest falls in like for like revenues were in the UK and Europe with sharp drops of 86% and 90% in Q2, largely down to the wholesale closure of stores, though with the re-opening of shops in June these numbers are now starting to pick up again.

On the plus side, helping offset that weakness online gaming revenue rose, rose 19% in H1, with a 22% rise in Q2, with a strong performance in Australia. Management said they expect first half earnings to be within the range of £340m-£350m, while CEO Keith Alexander is set to retire and will be replaced by Shay Segev.

Energy provider SSE has said that coronavirus impacts on operating profits are in line with expectations, with profit expected to be in the range of £150m and £250m, though this could well change. The company has said it still expects to pay an interim dividend of 24.4p in November, in line with its 5-year plan to 2022/23.

In terms of renewable output, this came in below plan, but was still higher than the same period a year ago.

Purplebricks shares are higher after announcing the sale of its Canadian business for C$60.5m to Desjardins Group

Aviva announced that it has completed the sale of a 76% stake in Friends Provident to RL360 for £259m.

Royal Bank of Scotland also announced that from 22nd July 2020 it would henceforth be known as NatWest Group, subject to approval as it strives to draw a line under the toxicity of the RBS brand. This toxicity has dogged the bank since the 2008 bailout, along with the various scandals, around rate fixing, PPI and the GRG business, that have swirled around the bank since then. Investors will certainly be hoping so given the current share price performance, and hope that the change in name isn’t akin to putting lipstick on a pig.

Consumer credit ratings company Experian latest Q1 numbers have shown a large fall in revenue growth across all of its regions with the exception of North America, and which helped mitigate a lot of the weakness elsewhere.

The euro is slightly softer ahead of this afternoon’s ECB rate decision, which is expected to see no change in policy. At its last meeting the European Central Bank hiked its pandemic emergency purchase program by another €600bn to €1.35trn, with the time horizon pushed into the middle of June 2021. The ECB still needs to formally respond to the challenge of the German court irrespective of its insistence it is covered under the jurisdiction of the European Court.

Even where Germany is concerned optics are important, particularly if the ECB wants to be seen as a responsible arbiter of the economy across all of Europe, and the PEPP still remains vulnerable to a legal challenge, due to its difference with the previous program. The bank could also indicate if it has any plans to start buying the bonds of so called “fallen angels”. These are the bonds of companies that were investment grade, but have fallen into “junk” status as a result of the pandemic.

This morning’s UK unemployment numbers don’t tell us anything we don’t already know. The ILO measure came in at 3.9% for the three months to May, however the numbers don’t include those workers currently on furlough, and while a good proportion of these could well come back, there is still a good percentage that won’t.

On the plus side the reduction in jobless claims from 7.8% to 7.3% suggests that some workers did return to the work force in June, as shops started to reopen, however the number was tiny when compared to the claim increases seen in April and May, which saw the May numbers revised up to 566.4k.

To get a better idea of where we are in the jobs market the ONS numbers do tell us that there are now around 650k fewer people on the payroll than before the March lockdown, and that number is likely to continue to rise as we head into the end of the year and the furlough runs off.

The pound is little moved on the back of the numbers, while gilt yields have edged slightly higher.

US markets look set to take their cues from the weakness seen here in European markets, with the main attention set to be on the latest June retail sales and weekly jobless claims numbers.

Retail sales are expected to rise 5% in June, some way below the 17.7% rebound seen in the May numbers which reversed a -14.7% fall in April. The strength expected in the June number seems optimistic when set aside the employment numbers, and the 13m people still not working since March. This suggests that this number could well be highly fluid and while a lot of US workers have managed to get their furlough payments, it doesn’t necessarily follow that they will spend it.

Weekly jobless claims are still expected to be above the 1m mark, with a slight reduction expected to 1.25m from 1.31m. Continuing claims are expected to fall further to 17.5m, however these could start to edge higher in the coming weeks as US states issue orders to reclose businesses in the wake of the recent surge in coronavirus cases.

Twitter shares lost ground lost night after the bell as it became apparent that the accounts of high profit individuals like Elon Musk, Warren Buffet and former US President Barack Obama were hacked by a bitcoin scammer. All verified accounts were shut down as a result as Twitter scrambled to get on top of the problem. It’s difficult not to overstate how embarrassing this is for Twitter given that the blue tick offers certainty that the user of the account is the person they claim to be. To have them hacked is hugely embarrassing, and undermines the integrity of the whole blue tick process.

American Airlines shares are also likely to be in focus after the company announced that 25,000 jobs could be at risk, when the furlough scheme runs its course. United Airlines has already said it could cut up to 36,000 people, up to 45% of its workforce.

Netflix Q2 earnings are also due after the bell with high expectations that the company can build on its blow out Q1 subscriber numbers of 15.8m. Q2 is expected to see 7m new subscribers added.

Bank of America is also expected to post its latest Q2 numbers with the main attention on how much extra provision for bad loans the bank will add to its Q1 numbers.

Dow Jones is expected to open 160 points lower at 26,710

S&P500 is expected to open 18 points lower at 3,208

For a look at all of today’s economic events, check out our economic calendar.

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

American Airlines Takes Leap Of Faith With Increased Capacity

American Airlines Group Inc. (AAL) reported a Q1 2020 loss of $2.65 per share in April, compounded by a 19.5% decline in year-over-year revenue, triggered by a worldwide air travel collapse due to the COVID-19 pandemic. The bearish results weren’t a surprise, given well-documented woes of the airline industry, but Wall Street analysts still understated the severity of the losses. The news set off an aggressive sell-the-news reaction, dumping the stock to an 8-year low on May 14.

American Airlines Ticket Sales Picking Up

The outlook improved in the second half of May, with demand exceeding supply through the end of the second quarter. The load factor also improved at a steady pace, lifting from 15% in April to 63% in June. That uptick gave American Airlines a boost and the incentive to sell flights up to capacity, starting on July 1. However, it’s a risky move, requiring the carrier to add substantial payroll at the same time an out-of-control epidemic is sweeping through Southern and Southwestern states, forcing the EU to ban flights from the United States.

 

Executives outlined the latest initiative on Thursday, advising that “face coverings are now mandatory for all customers and team members while at work. As team members report to work every day, we have temperature checkpoints in place, and we’re also asking customers to certify they are symptom-free before traveling. We have also started a new collaboration with Vanderbilt University Medical Center to create a Travel Health Advisory Panel, which will advise on health and cleaning matters.”

Wall Street And Technical Outlook

Wall Street has taken a cautious approach on the stock, which was underperforming its rivals for many quarters prior to the pandemic. 3 ‘Buy’, 3 ‘Hold’, and a stomach-churning 7 “Sell’ recommendations highlight this skepticism, even though American Airlines has now dropped nearly 60% below the 2020 high. Targets range from a low of $7.00 to a street high $27.00, with price currently sitting at the dead center on the median $12.88 target.

Dilution could mark the biggest negative for American Airlines investors in coming quarters, with secondary offerings and heavy borrowing undermining bounces and uptrends. More importantly, the stock is now trading less than 5 points above the deep March low, raising odds for a retest that could trigger a dreaded death spiral, driving the once-profitable carrier into bankruptcy or a hostile takeover.

American Airlines Plans to Secure $3.5 Billion in New Financing

American Airlines Group Inc, a publicly-traded airline holding company headquartered in Fort Worth, Texas, announced that it is planning to secure $3.5 billion in new financing to enhance the company’s liquidity position as the coronavirus and related travel restrictions have led to a collapse in air travel demand.

American Airlines Group, the largest in the U.S., proposed a private offering of $1.5 billion aggregate principal amount of secured senior notes due 2025. The notes will be guaranteed on a senior unsecured basis by American Airlines Group Inc.

The company also stated that it intends to enter into a new $500 million Term Loan B Facility due 2024 concurrently with the closing of the offering of the Notes, American Airlines Inc reported.

Debt Terms

According to Bloomberg’s June 19 report, the junk bonds were expected to carry a yield of 11%. However, the company said that the final terms and amounts of the notes and the Term Loan are subject to market and other conditions and may be different from expectations.

The Company intends to grant the underwriters of the offerings a 30-day option to purchase, in whole or in part, up to $112.5 million of additional shares of Common Stock in the Common Stock Offering and a 30-day option to purchase, in whole or in part, up to $112.5 million aggregate principal amount of additional Convertible Notes in the Convertible Notes Offering, in each case solely to cover over-allotments, if any, the company said.

The Company expects to use the net proceeds from the Common Stock Offering and the Convertible Notes Offering for general corporate purposes and to enhance the Company’s liquidity position. The closing of neither the Common Stock Offering nor the Convertible Notes Offering is conditioned upon the closing of the other offering, the airline added.

Goldman Sachs & Company LLC, Citigroup, BofA Securities and J.P. Morgan will act as the joint active book-runners and as representatives of the underwriters for the Common Stock Offering and the Convertible Notes Offering.

Stock Outlook

American Airlines Group closed nearly 3% lower at $16 on Friday. It has plunged about 45% so far this year, still outperforming every peer. Fourteen analysts forecast the average price in 12 months at $13.78 with a high of $27.00 and a low of $7.00.

The average price target represents a -13.88% decrease from the last price of $16.00, according to Tipranks.

It is good to sell at the current level as 150-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.