Delta has a very constructive fundamental valuation (see the bottom half of the chart) and a very constructive "accumulated position" on the charts to suggest "Blue Skies Ahead" for further gains in DAL.
Fundamentally, you can see DAL has $3.6 billion in "free cash flow" which is the real cash return you would earn if you owned the company outright (which is a simplistic, but more realistic view than just earnings). The market capitalization of DAL is just over $30 billion, which means the current "Free cash flow yield" is 12% (3.6 billion/ 30 billion). That is a back-wards looking number but it is a high return given the alternatives that we can find in the universe of stocks.
Technically, DAL has a price pattern that shows that investors have accumulated shares and are "in control" of those shares and are prepared to hold them off of the market until higher prices are realized in the marketplace. Why is this the case? It is all about how shares accumulate from sellers to buyer and how the price is displayed on the chart. The price where the most price action takes place is the "battleground" area and can be seen by the thin white line I have drawn in the chart across the $37-$36.75 price level from June until September. What happened at that price line is important, because it spent 10 weeks total there and when the market climbs above that level, it means that the sellers are likely done their selling and the buyers have taken over control. The way the pattern develops from the "battleground" area is to move away from that zone for the same amount of time that it spent at that level AND the size of the movement "at the battleground zone" is the approximate size of the advance from the battleground level.
The white box you see is the measurement of the movement around the 10-week white line from June to September and then it is moved to the end of the battleground level and used to measure the time and price of the advance.
These dual factors of fundamentals and "share price accumulation" give solid credence to a strategy to look for a move to $45-$45.50 over the ensuing 6 weeks. With DAL at $41.17 now, that only represents a return of 10% in 6 weeks from current levels. If there are corrections back to the green arrow line drawn on the chart, then a much better risk/reward trade will set up as well and I will be looking to add to positions.
Other airlines including JBLU, LUV also support the DAL chart.
Wishing you well,
Tim October 20, 2016 11:48AM EST
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The price pattern is called "Time at Mode", also "Time@mode" or TAM.
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Still right on track at the top of the forecasted range.
$44.21 last.
Pre-election rally.
Nov 7 2016
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I sold calls out to December's expiration at the money. With VIX elevated, that might be a good way to get a little more out of this trade.
交易結束：目標達成
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Beyond Target.
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Warren Buffett was one of the major buyers of airline stocks that created the patterns in price that I picked up on. With low valuations, general fear of a recession and fear of rising oil prices amidst an oil supply glut, airline stocks were poised to bottom. Investors began to recognize that US Gov't Bonds yielding less than 2% are less attractive than an airline yielding 12%. With yields surging sharply since the election, companies with ONLY 4% or less earnings yields were sold sharply and investors are searching for more valuation cushion to protect them against further hikes in long term interest rates.
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Be on the lookout for corrections and additional entries into airlines on any weakness. Given that "Warren Buffett SUPPORT" is down about 10% for these stocks, you may want to be prepared to buy on corrections. Alternatively, look to sell 6-month put options 10% out of the money for premiums of 5%-7%. I believe this is a reasonable way to capture decent risk-adjusted returns for the upcoming 12 months. If Airlines go down, the put option will enable a seller to "put you" the stock at the predetermined strike price and you will end up with your position. Options are tricky though, so it will have to be below the strike price at expiration to give you the highest likelihood of buying the shares. If you don't end up with shares after expiration, then you have earned the premium you collected at the beginning of the trade. In a world of nearly zero interest rates and less than 2% dividend yields, a 5% return for 6 months isn't too bad. Annualize that out and you have a 10% return for insuring against a 10% drop in airline stocks. Sure, we can get a big decline, but as it stands now, airlines are earnings well north of 10% returns on capital, which is enough to attract the likes of Warren Buffett in the first place. He will be buying on dips, most likely, and unless something drastic changes from a regulatory or economic standpoint, I think this is the way to approach it. Nov 17, 2016 8:39AM EST
The June 42 strike puts are $2.50 last (yesterday's close). No guarantee that there are buyers at that price, it is a theoretical close which can be the mid-point between a bid and an ask from the market. Be wise and don't use "market orders" in options.
The $2.50 is a 5% yield on a $47 stock, but it is out 7 months from now.
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Re-read the whole discussion from a year ago and see how it panned out.
Hope to have had a successful 2017.
Tim
Dec 3, 2017 9:55PM EST
評論
G13Man
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looks close enough , u made it sooner and saved time premium on options
congrates
timwest
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@G13Man, 7 weeks instead of 10. I'll take it! Oil helped a lot as it slid down from $50 to $44. Airlines are a great way to be short Crude Oil.
A-shot
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Im following this an congrats on TAM working again, i wish you would post more of these - kinda miss these charts
timwest
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@2use, Thanks for the vote of confidence. It takes me awhile to put charts together, so sometimes I just post them in the Chat room. I'm glad you like them.
wtfrtr
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Tim,
Thank you for sharing the information, so far your call looks excellent. One question though based on your thoughts
>>the "battleground" area and can be seen by the thin white line I have drawn in the chart across the $37-$36.75
This looks like similar to market profile, anyways can you please share how were you able to plot the horizontal line, is that something available from tradingview which we can use or your proprietary code
Thanks.
timwest
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Hi wtfrtr,
I plotted the white line myself because I am able to quickly "see" where the most frequent price is using time just like Market Profile. I count the time at the mode, then start counting when a range expansion <or> a range is completely above (for an uptrend) or below (for a downtrend) the mode to start the countdown for the trend away from the mode. You can use "volume profile" until my "time at price" gets programmed, like "market profile".
TomPower
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Sorry Tim, they are going to burn their money with jetfuel with oil going back up
timwest
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What has been interesting so far is how well DAL has remained under accumulation despite the lift in crude oil prices. What I've found is that speculators have the largest long positions at the moment and stand ready to bank hundreds of millions if prices rise from here. The market hasn't treated speculators well in the past when they have 3-6 standard deviation sized positions. I'm wondering also if the Saudi Arabian 17.5 billion bond sale wasn't boosted somewhat by speculators buying up crude oil to create more attention and demand for the Saudi bond deal. Bonds backed by oil in the ground certainly are easier to sell if the price of oil is rising steadily going into a bond sale. It smells of "group think" and I think the market is cornered. Time will tell. If oil shoots up to 60/barrel, that could hurt airlines a little bit but the offset to higher costs would be a sign that consumers were strongly interested in traveling by plane. Airlines have fallen a long way on fears the economy is melting down, but now that prices are so low and the economy hasn't fallen into recession, I think value-buyers are there with both hands accumulating shares.
kocurekc
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Seems like the fundamentals are arguing against this call...
* declining revenues
* Flattening margins
* P/S increasing
* FCF in decline
* Nearing high volume
What am I missing besides trendline faith and a potential false break out...looking up towards high volume resistance levels?
timwest
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Fundamentals:
* Slightly declining revenues but solid cash generation.
* Margins are solid (flat is ok)
* P/S is increasing because the stock is rising.
* FCF is solid at high levels.
* The high volume level is at $45.50, my upside target.
The other names in the group look constructive also: JBLU, LUV.
congrates