Technical Resistance Could Keep Lid On United Stock

Airline giant United Continental Holdings, Inc. (NYSE:UAL) sold off sharply after its late-January earnings report, as traders reacted negatively to news that UAL plans to increase capacity and continue matching prices with lower-cost carriers. Following this big bear gap, the stock is now trading directly below its 10-month moving average and staring up at the convergence of its 40-day, 200-day, and 320-day moving averages in the $68 region. Additionally, UAL ended last week solidly beneath $67.51 -- the price point corresponding with a $20 billion market cap, which could exert psychological resistance going forward.

This negative price action could further embolden UAL short sellers, who have been making their presence known. Short interest increased 8% in the most recent reporting period, and as this metric moves higher from lows last seen in December 2016, it could keep UAL under pressure. Meanwhile, a short-covering trend from February through November 2017 failed to boost UAL, indicating that the bears have been firmly in control on this name for a while now.

Now is a prime time to bet on additional UAL downside via the stock's put options. Schaeffer's Volatility Index (SVI) stands at 28%, in the low 28th annual percentile -- suggesting short-term options traders have priced in lower volatility expectations only 28% of the time in the past year.

Subscribers to Schaeffer's Weekend Trader Alert options recommendation service received this UAL commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.