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PreMarket Prep Stock Of The Day: Delta Air Lines

May 4, 2020 1:31 pm
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PreMarket Prep Stock Of The Day: Delta Air Lines

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

When the Oracle Of The Omaha speaks, investors listen. So when Warren Buffett announced Saturday that he has sold his positions in four airlines and said "the airline business is changed in a very major way," the corresponding price action was predictable.

Delta Air Lines, Inc. (NYSE:DAL), the PreMarket Prep Stock of the Day, is one of the airlines that Berkshire Hathaway Inc (NYSE: BRK-A) (NYSE: BRK-B) exited.

Futures React Ahead Of Stocks

With the S&P 500 futures opening Sunday evening at 6 p.m. for the start of Monday's session, Buffett's cautious comments on the markets instigated a much lower opening. Yet by midday Monday, the index had rebounded off the premarket lows and was working its way toward Friday's closing level.  

Investors had to wait until 4 a.m., when premarket trading for U.S. equities commences, to react to Buffett's commentary on airline stocks. As expected, Delta opened well below Friday's close ($24.12) at $22.67 and spiked to $20.80 within minutes before mounting a rebound.

Delta Drifts Higher Ahead Of Regular Session

After the initial wave of selling, coupled with the slow rebound in stock index futures, Delta nudged its way to the $22 area. Its price off the opening bell Monday was $21.50, which was followed by by quick decline to $20.50, which not only coincided with the premarket low, but matched its March 23 low ($20.60).

From that low, Delta rallied over $2 to $22.67. It was trading just above and below the the $22 level as of the time of publication, down 8.96% at $21.95. 

Searching For A Positive In Delta 

If anything positive could be said for a company in which Buffett just exited his stake, it would have to be based on technical analysis as opposed to fundamental analysis.

With that being said, the issue has yet to be make a new low for the move. Even with the Buffett bashing, it has not even come close to its March 18 low ($19.10). Therefore, technical traders leaning on that low for an exit to a contrarian long trade are still in the trade.

Also, it may be construed that other institutional buyers that did not get caught in the downdraft are attempting to accumulate the issue at a steep discount to its 2020 high ($62.48). Also, shorts who are still in the issue may be using the decline to exit or lighten up their positions.

Delta Moving Forward

It is extremely difficult to argue against Buffett's rationale for exiting the issue. Not only has the airline business changed in major way, so has consumer behavior.

The total impact of the COVID-19 crisis is yet to be determined, and it may result in a depression or at least a recession and unemployment levels not seen in decades. When the economy bottoms out and begins to rebound, the luxury of air travel for consumers and businesses may not return to pre-coronavirus levels anytime soon, if ever.

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