HomeTrading NewsAs Carnival, Royal Caribbean and Norwegian Sink, Here’s When to Dive In

As Carnival, Royal Caribbean and Norwegian Sink, Here’s When to Dive In

Cruising stocks floated about as well as a sack of bricks on Wednesday. A Morgan Stanley analyst made negative comments about the industry, and questioned one company’s ability to withstand a recession.

Analyst Jamie Rollo lowered his price target for Carnival Cruise Lines (CCL) to $7, and placed a worst-case scenario price target of $0 on the stock. Carnival, the world’s largest cruise line, dropped 14% on the news to close at $8.87.

Competitor Royal Caribbean Cruises (RCL) fell 9.57% to close at $36.02, and Norwegian Cruise Line Holdings (NCLH) lost 9.4% to close at $11.57. All three stocks are near their respective 52-week lows.

Rollo raised legitimate concerns about Carnival’s ability to raise capital if an economic downturn should occur. The company lost $1.8 billion in its most recent quarter.

According to the chart, Rollo’s base-case price target of $7 is likely to be met. Carnival is trapped in a bearish channel (diagonal lines). The channel predicts that Carnival will fall below $6, which is the mean of the channel.

Chart Source: TradeStation

Carnival’s volume has been steadily increasing over the past three weeks (shaded yellow). The increase in turnover could be a sign of institutional selling. Wednesday’s selloff occurred on 2.5x Carnival’s normal volume.

According to Carnival’s RSI (relative strength index), this stock isn’t yet oversold. Even if it was, I wouldn’t buy Carnival at its current price.

Carnival has been oversold on five occasions since December (arrows). While each oversold reading led to a bounce, the stock eventually reached a lower low on every occasion.

The chart of Royal Caribbean Cruises is nearly identical to that of Carnival. RCL’s chart has a similar bear channel, a comparable increase in volume, and five oversold RSI bounces, just like Carnival.

Chart Source: TradeStation

The chart of Norwegian Cruise Line Holdings also has a similar look.

Chart Source: TradeStation

Here’s the takeaway: All three of these stocks are going lower. The downside momentum is strong in this sector, and nearby support — formed just last week — is unlikely to prevent a move to fresh 52-week lows for all three names.

However, these stocks are priced for an industry-wide calamity, and I’m not sure that’s realistic.

Rollo’s worst-case scenario is based on a potential economic downturn, but cruising enthusiasts tend to be older and wealthier. They are among the least susceptible to a recession.

Bottom line: These stocks should continue to sink, but not all the way to Davy Jones’ Locker. If I can get Carnival at the low end of the channel — under $5 — I’ll dive in.

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