The Trip Aboard Carnival Cruises Stock Will Be Stormy

Timing is critical for some stocks more than others. Buyers, resist the FOMO.

If you believe the headlines, the Tuesday rally was mostly due to the good news on the vaccine front specifically from Novavax (NASDAQ:NVAX) and Merck (NYSE:MRK). I usually pay little attention to what the experts in the media say about specific day rallies, and in general there is a lot of hopium baked into stocks from the impending vaccine. This is more true for Carnival Cruises (NYSE:CCL) and CCL stock.

Today I will warn against blindly buying CCL stock now just to follow the herd mentality. The trick is to do it without offending the fans, so keep in mind that I wrote about CCL’s upside near the bottom of this article.

This global quarantine destroyed the travel and leisure stocks, which includes the cruise lines. CCL stock, for example, fell 90% in under a month and for no fault of its own. The leaders of the world ordered the cessation of all sales.

Investors panicked because consensus became that these companies were going out of business fast. The frenetic energy over this possibility has abated since then and the bulls are gaining confidence. But therein lies the risk because it could be under false assumptions.

This Is Not an Obvious Starting Point into CCL Stock

Case in point: CCL rallied almost 13% yesterday from vaccine headlines. This is where investors make mistakes. It is having another strong day today. The fear of missing out (FOMO) usually kicks in when we see a stock rallying so fast and we impulsively buy it. Most often this turns out to be the worst place to do so. This is where I remind you that I wrote about the bullish upside potential of CCL less than a month ago and it rallied 40% from there. I am open to all opportunities so I am not a perma-hater.

Looking at the price action this week, I suggest that it would be smarter to wait out the battle going into $19 per share. Beating it would be bullish because it would trigger another leg higher. But since it was an actual zone of failure in March, it is best to wait for confirmation. Onus is on the bulls to succeed this time so the smarter thing would be to chase the rally from better footing after it starts.

Those are the normal challenges of a stock recovering from a huge fall. Every ledge that the bulls tried to hold on the way down becomes potential resistance on the way back up. The easy CCL trade was to buy the double dip near $8, but it is more than double now when nothing has changed in its operational challenges.

We still have no vaccine, and people are still afraid from the contagion factor. Cruises were already notorious for disease breakout headlines even pre-Covid-19. This crisis amps those fears up, so the pool of prospective clients will undoubtedly shrink from here on out.

Cruising Is a Luxury, Not a Necessity

The airlines are in a similar boat but they are more of a necessity. People need the fly to get things done even if it’s just to go back home after the quarantine. Nobody needs to cruise because it hasn’t been a basic mode of transportation in eons. Carnival Cruises and its competitors will have to get very creative with how they manage the new normal. All their basic formulas will have to change to accommodate the new rules that are sure to come.

I’m not here to intentionally hate on CCL stock, but I do want to warn against jumping onto the bandwagon too late. Missing out on a few upside ticks is a sacrifice investors should be willing to make if not already long the stock.

Buying the dip near $12 per share would be a much better starting point for anyone intending to hold it for the long term as an investment. I know this seems impossibly low, but I must remind you that it was there two weeks ago.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.