Don't Ignore This Chart!

Southwest Airlines Reverses with a Gap


Southwest Airlines (LUV) is in a long-term downtrend and the recent failure near the death cross points to further downside.

First and foremost, the long-term trend is down because LUV hit a new 52-week low in late October and price is below the 200-day SMA. In addition, the 50-day SMA just crossed below the 200-day.

After gapping down and hitting a new low, the stock bounced back to the 55 area in early December. This bounce, however, just retraced 50% of the prior decline, which is normal for a counter-trend bounce.

The bounce hit resistance as the stock gapped down last week and broke below the mid November low today. Also notice how the stock reversed right at the death cross. As cool as this sounds, it is probably just a coincidence and I do not consider this cross point as a resistance level.

The indicator window shows the PPO (5,30,5) turning down over the last few days and the PPO moving below its signal line. Thus, momentum is negative again and pointing down.

- Arthur Hill, CMT

Senior Technical Analyst,

Book: Define the Trend and Trade the Trend
Twitter: Follow @ArthurHill

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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