5/17/2020 Stocks down a little this week while airline stocks tank again. Analysis of my current positions and a long-term chart of Southwest Airlines. Still bullish short term (2-4 weeks).

Hi everyone, welcome back! Despite the indexes dropping a little this week, I’m still bullish in the short term (2-4 weeks). 

I mentioned last week that I was looking to buy airline stocks for either a quick weekly swing trade or a long term hold. I haven’t taken a position in airlines yet, but prices are continuously dropping so I will likely start selling short-term puts and look to either collect the premium if they expire or get filled on a position.

First, let’s take a quick look at my current three positions (BA, MRO, and PSEC). In terms of position sizing, I still own about 2.5 times as much BA as MRO and 2 times as much MRO as PSEC. 

BA daily chart below. Although I’m not too happy about this price action, we are in the 90-120 support zone so there’s a decent chance BA will bounce here. My average in my trading account is still under 100 (and just above 150 in my Roth IRA), so it is still a slightly profitable investment so far. My current plan is still to sell at 240+ with a minimum hold of one year to avoid short term capital gains taxes. 

BA daily chart 5_16_2020

MRO daily chart below. Energy stocks have been doing well the last couple months, and MRO has performed quite well. My average is still at 3.5 and I don’t plan to sell until the low 10s or until the insiders I’ve been following start selling. 

MRO daily 5_16_2020

PSEC daily chart below. This trade was intended for the dividends, so I don’t mind holding it unless the dividends go away. I will likely sell if it reaches 6, but will still hold it for at least a year. It looks like PSEC is in a trading range from roughly 3.8 to 5. My average is still at 3.81 but the position sizing is quite small so the gains are relatively small. 

PSEC daily 5_16_2020

Now let’s look at Southwest Airlines (LUV).

Monthly chart of LUV below all this text. For a long term investment (5 years+), I think buying here without a stop loss (or no plan to average down) would be pretty scary. I’ve highlighted the consolidation range from year 2000 to year 2013. It’s possible for the stock to drop to that zone, and the worst case scenario is the airline goes bankrupt. In terms of risk reward, assuming the airline does go bankrupt, we should be rewarded with at least 3 times what we put in. Buying here at 24 means we need to sell at 72, which is above the recent highs. With this risk reward of 3 to 1, we would want to buy near 20 with a plan to sell near 60. 

If I do invest in airlines, I plan to sell weekly or bi-weekly puts to collect premium until I get filled on my position. I will keep you updated. 

For a swing trade, our target would be near the breakdown level in the mid 30s. Notice we have volume expansion here (circled in chart below) so we should be nearing a local bottom. 

LUV monthly chart 5_17_2020

 

I hope you enjoyed the longer post and see you next week! 

 

 

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