Yesterday morning, shares of Frontier Airlines (NASDAQ:FRNT) were looking strong and PremierMarkets.com profiled bullish play from May 2nd was looking good as the company had reported strong earnings. Then late in yesterday's trading session, we notice a precipitous drop occurring in the stock on light volume when the company was in a conference call with analysts. While we alerted traders to that activity in the hot list, we did not take any pervasive action as the companies earnings report mentioned nothing about future slowing. This morning, FRNT warned that next quarter earnings were going to fall well below analysts expectations and the stock gapped lower at the open and triggered our stop which we raised to the $14.50 level. PremierMarkets.com is dropping coverage of this bullish play, which was profiled on May 2nd.
Frontier Airlines Chart - $1 and $0.50 box
Learning from a trade that was working in a bullish trader's favor only to end up reversing course is important. Hindsight is 20/20, but we will now look to learn from what we probably should have been doing yesterday. An extension of the old bullish support line could very well have been the upper end of a bullish channel where PremierMarkets.com should have had traders locking in some handsome profits on their Aug 15 calls (FUOHC), which we had profiled from May 2nd. This morning's gap lower and recent trading have the stock now traded at the lower end of a bullish channel, but a trade at $12 would have the stock giving a sell signal. In the future, we will look for other similarities in chart patterns, and look to use the technicals found above in our to our favor. If traders have profits riding in a stock that trades below bearish resistance (red +) and the stock has rallied up to or just underneath an extension of a broken bullish support line, we would be ready to take some chips off the table. Perhaps this profiled trade and end results was proof that support broken (bullish support) became resistance (extension of bullish support trend).
Problems with our quote feed
PremierMarkets.com is have some problems getting quotes this morning. From the intermittent responses I do get, the markets look mixed with Chemical stocks as represented by the S&P Chemical Index (CEX.X) along with the Airline Index (XAL.X) leading sector decliners.
Bearish traders may want to be taking a look at some charts of airlines stocks and look for short/put opportunities in the group. Often times, a report like we've gotten this morning from Frontier Airlines (FRNT) isn't just company specific, but can be group related. Yesterday I was watching the XAL.X closely and we thought a move above the 152 level would be bullish. That never happened and airline stocks might be susceptible still at current levels. I like to use both point and figure charts along with bar charts to seek out trades, but right now I'm missing part of the tools (bar charts) in my toolbox and don't want to be throwing out potential trades without knowing for sure where certain stocks stand. When I get my bar charts back, I'll be better able to make some buy/sell decisions.