The Curious Case of United Continental (UAL)

6 month TA on UAL

United, despite being an airline with notoriously bad service, and having a rough quarter (net loss in the first quarter widened to $213 million or $0.65 per share from $82 million or $0.49 per share in the prior year, below Wall Street consensus expectation), they recovered nicely in stock price thanks to smaller than expected loss in American Airline. In fact, they rise so much so quickly that they broke the bearish trend and coming right at the resistance level at around 23.5, as shown above.


Looking at fundamental, the huge loss in the first quarter made sense: rapidly rising fuel cost, dwelling economy leading to less passengers going on vacation or business travels, and the unexpected hit from the massive earthquake and subsequently tsunami plus radiation leak in North Japan. All these are big ticket hitter and should affect most international airlines. To add salt to the injury United is just going through merger with Continental and there will be some settling time with the integration, especially on how to cope with the unions.


So what's next? Fundamentally the travel season is beginning, and should help with their profit. Key part to watch is the oil price's movement which will have upside pressure from summer's fuel use (road trips, air conditioning, etc) and the unrest in the middle east. Downside pressure for oil includes European debt crisis and China's heavy hand on curbing inflation. The Japan case is still a mess, but rebuilding takes oil, too.


Technically if UAL breaks the second resistance at 24 then, though weak, they will be going in a bullish trend.


Disclosure: I had net short position on UAL, and no other airline exposure. And I hate United - they should go down and let someone better like Cathay to run it.