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US airlines show signs of uptrend exhaustion ahead of Q4 earnings


US airline shares have rebounded sharply since mid-December, amid expectations of a fast recovery in the travel sector, with omicron seen as a less severe variant that will not lead to further restricted lockdowns.

The US Global Jets ETF (JETS) rallied as much as 15% from the lows seen on 23 December, while Delta Airline surged 21% since 1 December. However, there are signs of uptrend exhaustion in the major airlines’ charts ahead of fourth-quarter earnings report season. Delta Airlines is the first major airline company to report earnings before the US markets open on Thursday, which will be a bellwether to gauge the Q4 performance.

Positive Q4 earnings expectations  

Delta Airlines (DAL)

According to Refinitiv, the Atlanta-based carrier is expected to earn 15 cents per share in the fourth quarter, up by 13% from the third-quarter loss of $1.02, and 70% from a year earlier with a loss of $7. The revenue expectation is $9.02 billion in Q4, an upbeat of 127% from a year ago.

American Airlines (AAL)

The company indicated on Tuesday that its fourth-quarter revenue to be down by 17% from the pre-pandemic level in 2019, but higher than the previous forecast at 20%, given by an improving profit margin and increased liquidity during the holiday season. The largest US carrier will report the earnings on the 20th of January.

United Airlines (UAL)

The major US airline company is to report the earnings on the 19th of January. It is expected to register a loss of $2.12 per share in the fourth quarter, but a 70% lift on a year-on-year basis. The revenue is predicted at $7.94 billion, up by 130% from a year ago.

Omicron spike looms over airlines optimism

Despite most of the earnings expectations being optimistic over major US airlines, the omicron-induced restriction and sick staff calls put the aviation industry sidelines again. The rapidly-spreading omicron variant caused chaos in the recently recovering industry. The CEO of United Airlines said around 3,000 employees have tested positive for Covid. According to FlightAware, 30,600 flights in the US have been cancelled since Christmas Eve.

Some airline companies have to offer staff and pilots incentives to pick up additional shifts, in turn inflating the operating cost on top of the Covid containment measure cost and rising fuel prices. The worst-case will be a new round of border restriction or shutdown, which might wipe off all the current optimism across the travel industry. Airline companies may be cautiously giving guidance for the first quarter performance into 2022, considering the negative impact from the omicron variant.

Macro-environment may provide long-term support for airlines stocks

Looking into the bright side, the Fed starts launching the tightening monetary cycle, which provides fundamental support for the airline industries in a long run. In the economic recovery cycle, cyclical stocks are those that benefit from the macro environment. The airlines suffered the most from the pandemic era started in March 2020, the industry found a bottom since and now getting into a recovering but bumpy journey. Most analysts give a high ranking for the US airlines companies in 2022.

Delta Air Lines (signs of uptrend exhaustion at the upper band of the descending channel)

Delta Airlines’ share price is facing resistance on the 200-day moving average, with signs of uptrend exhaustion at the upper band of the descending channel formed since April 2020 high at $51.64. A potential pullback is imminent, given the Stochastic forming a dead-cross in the overbought territory, together with RSI and MACD all point to a top reversal pattern.

The pivotal resistance: 43.32, 45. 51.

The imminent support: 40.34, 39.44.

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