Is Carnival Stock About to Break Down Despite a Return to Cruising?

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October hasn’t been a great month for Carnival (NYSE:CCL) and its peers. It leaves Carnival stock hanging by a thread, with shares looking like they could break down.

Source: Ruth Peterkin /

Of course, climbing cases of the novel coronavirus don’t help matters, as investors wonder when the industry will get the green light to resume sailing. In some places, the company has already started to sail again, but it’s not enough to offset the no-sail orders it faces everywhere else.

Carnival’s Costa Cruises began sailing again in Italy last month. Now, its AIDA line is starting in Germany this month. The limited-capacity, limited itinerary voyages are a way of scaling back into cruising.

It leads to two questions: Will it work, and will it eventually be profitable?

October’s Been a Tough Month

Aside from these positive steps forward, it’s been a tough month for Carnival stock.

On Oct. 8, Carnival reported a top- and bottom-line miss on its fiscal fourth-quarter results. The company reported an adjusted loss of $2.19 per share, missing estimates by 38 cents. Revenue fell 99.5% to just $31 million — how many times do you see revenue fall 99.5%?

It was a painful update, where the company also said it expects to burn about $530 million per month in calendar Q4. While down from $770 million per month last quarter, that’s still a hard pill to swallow. In all, Carnival reported a net loss of $2.86 billion, which shouldn’t be all that unexpected since it’s not operating a business at this point.

Then Oct. 13 came along. This was a double-whammy of a day, with Carnival reporting a data breach and Royal Caribbean (NYSE:RCL) selling $500 million worth of common stock.

Raising cash isn’t a bad thing necessarily, but more stock on the open market — particularly when there’s not much demand to begin with — does little to help the stock price. That created selling pressure in the group and Carnival’s data breach only made thing worse. Carnival stock fell 7.7% that day and ultimately shed 13.5% that week.

Impressively though, the stock didn’t make new lows after all of this.

Trading Carnival Stock

From the January high to the March low, Carnival stock fell more than 84%. Shares put in a double bottom near $8 as the company raised a boatload of cash — no pun intended.

That helped lead to a 200% rally, as shares topped out near $25 in June. Now the stock has settled into a narrowing trading range over the last few months. That’s defined by its series of higher lows and lower highs (the blue lines forming a wedge pattern).

As the bounces become weaker and with shares hovering below the 20-day and 50-day moving averages, investors are growing nervous about a potential breakdown.

If we get one, look to see Carnival break below wedge support and the September low at $13.40. Below the latter will almost immediately put the August low in play at $12.83. Should Carnival lose its summer low from August, it puts the May low back on the table at $11.

Of course, the fact that the stock didn’t retest the lows after a 99.5% decline in revenue is positive.

However, we need the stock price to prove itself. At the very least, bulls want to see the stock back above the 20-day and 50-day moving averages. Over wedge resistance would also be a plus. That will put the $18 to $19 resistance area back in play, followed by the 200-day moving average.

Bottom Line on CCL

The issue with Carnival is simple: It’s not in business. So it has a few limited cruises in Europe, but how long before those get shut down? The continent is seeing a resurgence in coronavirus cases, as is the U.S.

Obviously, the world won’t wait for the case count to go back to zero, but an acceleration in cases is not a good sign.

Not only is Carnival being restricted, but one has to imagine that sustainable demand and pricing power will take a hit as some customers avoid the industry. In the meantime, Carnival has no revenue, is losing billions on the bottom line and burning hundreds of millions of dollars a month.

To stem the devastating blow, it’s borrowing debt and diluting its shareholders. Maybe this one is worth another look below $10. Right now, though, Carnival stock isn’t for me.

People are a whole lot more likely to get on a plane than get on a cruise ship and I’d rather look at the airlines as a recovery play instead.

On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

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