PreMarket Prep Stock Of The Day: Royal Caribbean Cruises

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

A rebound for cruise line stocks continues to encounter bumpy waters. Although there has been a plethora of good news regarding a COVID-19 vaccine, the issues in this sector are well off their March rebound highs and have relinquished some of their gains from earlier in the week.

The PreMarket Prep Stock of the Day, Royal Caribbean Cruises Ltd RCL is one of the most widely held issues in the sector. 

Royal Caribbean Rebound Begins To Fade: While the S&P 500 index bottomed out on March 23, Royal Caribbean did the same a few days prior at $18.25 on March 18. That marked the lowest level for the issue since October 2011, when it bottomed at $18.70.

While the index has continued to rally, the issue peaked at the height of the reopening trade frenzy June 8 at $75.22. So far, the retreat off that high ended June 29 at $45.08 and has faded over the last few weeks.

Until Wednesday, the issue was struggling to rebound and remain in the $50 handle.

Royal Caribbean Sets Sail With Major Rally: On Wednesday, the issue had one of its biggest rallies ever, when it added 21% after gaining $10.21, moving up from $48.15 to $58.36.

Whenever this issue spikes higher, it is instigated by positive news from one of the drug companies working on a coronavirus vaccine — even a modicum of good news regarding one positive result from a drug trial.

On Wednesday, it was Moderna Inc's MRNA turn to stoke the vaccine frenzy in the markets.

Royal's Dead Cat Bounce: As is so common with stocks in a bear market, there are always dead cat bounces. In other words, counter-trend rallies that investors use to exit an issue or initiate a short position.

Of course, the dilutive action taken Thursday by Norweigian Cruise Line, with a $250-million stock offering at $15 — well below its Wednesday close of $18.50 — had investors worried about Royal Caribbean having to do the same to stay afloat.

As a result, Royal gave back almost half of Wednesday's gain, falling from $58.36 to $53.94 in Thursday's session. 

It's Hard To Make Money When There Are No Cruises: Before the open Friday, the CDC extended the suspension of “passenger operations on cruise ships with the capacity to carry at least 250 passengers in waters” through Sept. 15.

Simply stated, this means companies in the industry will continue to lose more money and pile up more debt with little or no cash coming in for at least a few months. It's certainly not a recipe for a rally in shares of cruise lines. 

PreMarket Prep Analyzes Royal Caribbean's Price Action: With the inconsistent news flow in the sector, it is difficult to trade Royal Caribbean based off the daily headlines.

Clearly, there are two camps in the issue. The bullish one says that the crisis will be over soon and business will be back to normal.

The bear thesis is that the crisis will not end for a long time — and these companies will go out of business. Neither theory is likely to be totally accurate. 

When Royal Caribbean was being covered on Friday's show, it was trading in the mid-$52 handle, slightly red for the session.

Without trying to guess the next headline for the issue, the author of this article encouraged investors to observe the price action near Wednesday’s low of $51.35.

The thought is that if Royal Caribbean could hold that level, then perhaps the Street would shrug off the bad news and set the stage for a rally.

After a lower open Friday, the stock continued in that direction, but found buyers ahead of that low, only reaching $51.35.

At last check, Royal Caribbean has rallied as high as $54.27 and was trading down 1.67% at $53.04. 

Photo from Pixabay.