Hot Hotel Stocks

We highlight Wyndham Hotels (WH) and Avis Budget Group (CAR).

Overview

  • Our analysis for the last two weeks has been spot-on.

  • The market had a relief rally in response to a temporary resolution to the debt-limit standoff.

  • The September unemployment report came in weaker than expected at 194,000 new payroll jobs, but the August number was revised upwards. The report suggested we have a shortage of workers, and probably will not affect the Fed’s taper plans.

  • Earnings reports will probably drive the markets for the next few weeks until the next debt-limit standoff, now rescheduled for early December.

  • US 10-year yields climbed to 1.61%, and their uptrend continues.

Key Question

Is there pent-up demand for travel next year as the world recovers from peak COVID-19?  As I have discussed for several weeks, the virus seems to have peaked for now, and industry analysts are expecting a rebound in travel next year. So is there a way to profit from an uptick in travel activity next year? Yes, there is: hence we search for the hot hotel and car rental stocks.

Performance Summary

The markets were weak on Monday but gradually rallied as the likelihood of a deal on raising the debt limit became clearer. In addition, technology stocks bounced despite rising interest rates.

The sensitive Bull/Bear Net Balance from leveraged and inverse ETFs ended the week above zero, even though it had been strongly negative last Friday. This indicator nicely captures the headline-driven, choppy trading for the past several weeks.

The rally in the very short-term shows the “smile” in the trend spectrum of the major US Equity sectors. However, the feverish selling since early September has driven down the sector breadth in the short, medium, and intermediate-term, a sign of the weakening of the long-term uptrend.

The sector breadth across time shows the effects of the bounce in the very short term, but the “smile” shape shows the effects of selling since early September.

The Nasdaq Composite ETF (ONEQ) tells the story of the current state of play. This ETF sold off in September to re-test prior resistance around 55 set during February and April. In classic technical analysis fashion, prior resistance has become the new support. Unfortunately, the bounce from 55 has not yet risen above the upper green band of the plotted bands, and until that happens, we will assume that the short-term trend is still pointing down. In the medium-term, the ONEQ is in a trading range between 55 and 60 until we get a strong breakout in either direction. Market commentators expect the uptrend to resume, so I expect a breakout above 60 if we can safely raise the debt limit in early December.

In classic technical analysis fashion, prior resistance at 55 on the ONEQ ETF chart became the new support. The downtrend is still presumed to be in force until we get two consecutive closes above the upper green band (in the green-blue-red band set).

Our recent market analysis has been spot-on. Last week I expected the volatility to drop and the SPY to rally this week. That is just what happened after the agreement on raising the debt limit. The VIX index dropped back decisively, and SPY rallied past the down-trend line.

Looking ahead, the market may need to back and fill a bit before heading higher, especially as we get into the earnings season. Then the new debt-limit deadline (Dec 3) will loom over the market, which means traders will be keeping a wary eye on Washington.

Travel Boom in 2022?

Based on what we know now, it is reasonable to expect that travel could be easier next year as the virus threat recedes. When people travel, they fly to their destinations, rent cars, stay in hotels, and visit restaurants and bars.  So, beneficiaries should include hotel stocks and car rental agencies.

We searched our database using the composite trend strength using data as of the close of 10/07/2021. Here is what we found for hot hotel stocks.  The strongest stocks are tabulated below. The top three are already in strong trends, with the Composite Trend Strength > 350.

Let us take a closer look at the technical picture for Wyndham Hotels (you can find their earnings estimates here.) Recently, the stock has broken out strongly from a long consolidation, depicted here by the many yellow bars inside the Chande Adaptive Price Channel (CHAP). The combined short-term and long-term trend strength is very strong, at 383 out of 400.

My Metastock “swing system” model picked up this trend very nicely, as shown below. This “system” is looking for a decisive breakout beyond the green line in the chart, and that occurred in combination with strong trend strength, as shown by the orange Chande Trend Meter line in the upper panel. Observe the good follow-through in prices after the initial entry.

Another travel-related stock that has rallied is the Avis Budget Group car rental company. The composite trend strength for CAR is 350/400, so it is just gathering strength. Earlier this summer, there was a widespread shortage of rental cars across the US, and so these companies now have pricing power on top of rising demand.

Avis Budget Group (CAR) has just broken clear of its recent consolidation and should benefit as travel picks up. Earlier this summer, there was a widespread shortage of rental cars, so these companies have pricing power.

Wrap-up

If you like to do your own research, my posts should give you a good starting point, with context and suggestions. Then, you can visit my website, chandeindicators.com, for more information and ideas. I hope you will stay tuned and help by subscribing and recommending it to your friends and colleagues.

Thank you for spending some time with me.

Share

Disclaimer

And now for some housekeeping. This publication is for “edutainment,” education, information, and entertainment purposes only. It is not to be construed as investment advice. Past performance is not necessarily indicative of future results. Our disclaimer at chandeindicators.com is included herein by reference.