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Shares of Royal Caribbean (RCL) broke out to all-time highs this week, driven by renewed optimism in the summer months. Our deep dive into the technical analysis evidence suggests this could be just the beginning for this cruise line stock. Let’s review the key evidence based on price and volume trends and also see what one of the classic charting methodologies can tell us about price dynamics. The daily chart of RCL features a pattern I call “moving averages proper order,” where three moving averages are aligned to confirm an uptrend phase. The 20-day exponential moving average is above the 50-day simple moving average, and the 50-day moving average is above the 200-day moving average. All three moving averages are sloping higher, confirming that price is in a fairly consistent uptrend. With the move to new highs this week, Royal Caribbean was able to break above a key resistance level around $275. This level was first reached back in January and then was retested earlier this month. The push above $275 came after a pullback to the 20-day exponential moving average, providing a springboard for the current upswing. The relative strength tells the real story here, as it shows that RCL has outperformed the S & P 500 since the April market low. So not only has the stock been appreciating in absolute terms, it’s also been able to outperform the benchmark during that period. With strong momentum readings and improving relative strength, the daily chart appears to be firing on all cylinders. Now let’s review the volume trends to determine whether the recent upswing has been supported by additional buying power. Here we can see the On Balance Volume has been sloping higher since the April low, implying stronger volume on up days than down days. As long as the OBV keeps trending higher, that would suggest further volume support for the uptrend phase. In the bottom panel, the Chaikin Money Flow uses daily volume readings compared with price moves to determine whether a stock is in a period of accumulation or distribution. This indicator moved slightly below the zero level in early April, then popped back above zero where it has remained through this week. This consistently high reading for the CMF indicator implies that the stock is in a clear accumulation phase with definitive volume support. Finally, let’s go old school technical analysis with a point & figure chart. Point & figure charts thrived in the trading pits of the Chicago exchanges, where traders would hand draw charts based on the daily trading activity. A column of X’s represents an uptrend where the highs are getting higher, and a column of O’s confirms a downtrend where the lows are getting lower. Traders value this charting style as it focuses on signal over noise, eliminating the noise of daily price bars to simply analyze uptrends and downtrends. Right in the middle of the chart, you’ll see a number 4 which represents April 1. Soon after, a column of O’s dropped significantly as RCL approached a major price low in early April. This down move is known as a “low pole warning” as the price has driven lower with no real pause in the trend. That next column of X’s represents a “low pole reversal” where the downtrend has been alleviated and traders should anticipate further upside as a result. More recently, we can observe a “double top breakout” where a column of X’s breaks above the previous column of X’s. This breakout pattern is the most basic buy signal in the point & figure methodology, signifying that a new uptrend has broken above the upper bounds of the previous uptrend phase. Given this recent double top breakout, combined with improving volume and relative strength characteristics, Royal Caribbean appears to be sailing onward and ever upward. -David Keller, CMT marketmisbehavior.com DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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