It’s a big moment for Southwest Airlines (LUV). Most importantly, they’re testing a very key ascending support trendline which has provided solid support since late April. This ascending trendline has shown incredible strength during this time, serving as the bedrock for the stock’s 110% gain over the last five months. As the airline nears a critical price point, analysts are closely monitoring whether LUV can maintain its upward momentum or if market bears will take control.
In July, optimistic investors pushed LUV up into the $37-38 area of resistance, where it immediately met some powerful headwinds. That was the jump from which shares could not quite muster a breakout. In response, it fell out with a bang, as depicted in the very large red candle. Even worse for the stock, this rejection marked the end of the stock’s upward momentum. It left a very obvious hole on the chart, raising fears among investors of its long term trajectory.
If LUV fails to hold above its rising support trendline, that would undermine the five-month uptrend structure completely. This sort of division would return power to the bears. In turn, the airline’s shares may face much steeper declines. When it comes to LUV, investors have been quite apprehensive. They’re on the lookout for the first signs of any reversal in trend or continuation of bearish sentiment.
The recent shock and accompanying turmoil has been unprecedented. That trendline has continued to be a strong cue even through three months of sideways and choppy action following the rejection in July. This phase of consolidation is important because it gives the stock time to regroup and re-evaluate the state of the market. In addition, LUV is consolidating right now at or above the $37-38 level. This important threshold would determine its trajectory over the near-term.
Consolidating at this level would show that the sellers are probably out of bullets to push the price down. That would be a strong positive signal that prudent buyers are getting ready to force LUV shares back into new high country. Analysts think that if the successful consolidation moves forward, it would be worth a 10-12% lift from current levels. This possible shift provides a scenic path forward for investors bullish on the carrier’s long-term prospects.
As traders and investors consider what will happen next, all eyes are on Southwest Airlines. Which way this testing period goes will determine the stock’s immediate future. They determine how it will work in practice in the months to come. The market remains fully tuned in, looking for any indication of a LUV rebound. Will it overcome its recent headwinds, or will it succumb to bearish forces?