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Why Buffett Might Have Made the Right Move Selling Delta Airlines Stock

When it comes to Delta Airlines (NYSE:DAL) stock, the immediate forecast calls for more doom and gloom. Still, let’s take a closer look at what’s happening off and on the price chart so investors might locate a stronger risk-adjusted position and avoid unnecessary turbulence in the weeks ahead.

For many on Wall Street, the bull market rally has turned slightly problematic. The S&P 500 is off about 0.50% Thursday following back-to-back losses of around 3.75%. It has been a perfect storm for profit-taking after gains of as much as 35% since the March 23 bottom.

On Tuesday, U.S. infectious disease expert Anthony Fauci got under the skin of investors stating the novel coronavirus isn’t fully under control as many cities begin reopening businesses.

Wall Street then received an ominous warning from the Federal Reserve’s Jerome Powell during Wednesday’s trading session.

The Fed Chief sees the risk of a much larger recession than any since WWII hitting U.S. shores due to the coronavirus. This is happening all while rising political tensions between the U.S. and China over who did what to whom regarding the disease are continuing to weigh heavily on the market.

Technically, the broad-based, large-cap S&P 500 is also showing technical fatigue beneath its 62% retracement level. After roughly three weeks of challenging the resistance level, shares have put together a bearish engulfing candlestick.

But what does that have to do with beleaguered airline Delta? Mostly everything.

During the best of times, since the market’s massive rally off March’s history-making low, DAL stock has remained largely under pressure. Amid an unsustainable collapse in industry traffic and socially distanced reality, airlines are trying to navigate a devastating environment where bankruptcy chatter has become part of the daily conversation on Wall Street. And it has been more than just idle talk too.

Berkshire Hathaway’s (NYSE:BRK.A, NYSE:BRK.B) recent and shocking exit of Delta and its entire airline stake is a sure sign of the gravity of the situation. And as to reinforce those actions, after unloading the positions, some of which were optimistically purchased early on in the Covid-19 outbreak, CEO Warren Buffett who’s famous for buying when others are selling, warned the “world has changed.”

DAL Stock Weekly Price Chart

DAL Stock Weekly Price Chart

Earlier this week, I examined airline peer Southwest Airlines (NYSE:LUV). Southwest is another industry victim and casualty of Berkshire’s bearish unwinding. In that write-up, I wrote about the real possibility of lower prices in Southwest stock despite a very supportive-looking chart nearly ready for a contrarian style purchase.

The bearish potential turned real on Wednesday for Southwest Air. Similarly, DAL stock, with its nearly swappable problems, has struck new lows with Thursday’s latest selling pressure.

So, what’s the forecast going forward? The following suggest that a nearby short position in Delta could be in order: Subtle differences in Delta shares positioned closer to its 76% Fibonacci support, today’s pressure occurring out of the weekly chart’s descending triangle and stochastics on the cusp of a bearish crossover in neutral territory.

For the moment, I’d monitor Delta’s stochastics and the 76% level. Should DAL stock fail this last key layer of price support with confirmation from a crossover, lower share prices on bearish momentum look promising.

Ultimately, Delta may not be on a path towards bankruptcy like some other airliners. Still, alongside a market cap of $12 billion and 2009 low near $3 a share, there’s plenty of wiggle room for bears looking to take a one-way seat in DAL stock as it heads south.

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