Textbook Arc Rounded Reversal for High Flying Airlines

May 25, 2015: 2:06 PM CST

A beautiful chart pattern played out on two airline stocks – Southwest and United Airlines.

Let’s study this pattern and plan what may be next for these once high-flying names that have returned to earth.

The “Rounded Reversal” or Arc Trendline Pattern is one of my favorite chart patterns on the higher frame.

Notice the strong impulse up (late 2014) that peaked with a gentle sloping flattening in price that shifted into a steeper sell-off that we’re seeing now.

The “Arc Trendline” or “Rounded Reversal” pattern is visually appealing (it just looks good) while giving us plenty of time to adjust our trading strategies.

The breakdown in April on  high volume with a new momentum low signaled the end of the short-term uptrend and indeed price stagnated into the underside of the daily moving averages ahead of last week’s collapse breakdown.

These two stocks – and their Gap into Trend Day events – topped our list of weakest intraday stocks on May 20th.

For now, we’re focusing on the $53.00 per share level as the target/pivot point.

Continued weakness (more selling) here suggests price could go ahead and complete a sharp downside move that would look similar to the left side of the arc – meaning a movement down to $45.00 or even $40.00 per share into the future.

Otherwise, $53.00 is a possible bounce-pivot where buyers can play into this stock into support (but not under it).

The picture – and logic – is the same in Southwest Airlines (LUV):

A similar strong uptrend lifted the airlines stock from $30.00 to $46.00 per share in late 2014 only to see the upward path descend back toward the runway with the recent sell-off.

Similarly, LUV tests the late 2014 spike high and the $36.50 area should be seen as a similar pivot point.

A further decline under $36.00 suggests a touchdown near $32.00 or even $30.00 per share.

Study these textbook arc/reversal patterns and – if you’re trading these stocks – plan accordingly from a departure from the current pivot points.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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3 Comments

3 Responses to “Textbook Arc Rounded Reversal for High Flying Airlines”

  1. Ravi Says:

    Reversal should always be taken carefully, I have been doing trading since last 4-5 years and I always fear the reversal, it can be highly profitable, but also can give huge losses so we need to be careful with our approach. I am lucky to be working with best Global STP broker OctaFX, it’s really one of the biggest brokerage company in the world and have every trick of the book, so that really help us get the results in our favor.

  2. Descent Continues for Airline Stocks LUV UAL DAL | Afraid to Trade.com Blog Says:

    […] Be sure to study my prior post from May 25th:  “High Flying Airline Stocks form Textbook Rounded Reversal.” […]

  3. A Takeoff and Bounce Reversal for Delta Airlines DAL | Afraid to Trade.com Blog Says:

    […] Also reference the prior post “High Flying Airlines Completing Arc Reversal Pattern.” […]