After failing at 3 attempts to break and hold above the $66 level late last year, Southwest Airlines stock, LUV, was eventually taken out to the woodshed and beaten with a stick. Price fell ~25% as sellers had their way until it hit the $50 mark where willing buyers showed up in numbers and provided a respite for the decline. As you can see in the chart below that support level acted was important the past too as the 2017 correction found a bottom twice in exactly in the same area.
Since bottoming in May, price has retested that same $50 level and each time buyers have stepped in pushing prices higher, where sellers take back control at $53. For now, LUV is stuck in a $3 range and looking for a catalyst for that to change.
Picking bottoms is hard but I have found that a downtrend followed by sideways consolidation that last for at least 6 months and then break higher provide a much high probability trend reversal follow-through and investment gain opportunity.
It doesn’t mean it won’t turn out to be a good investment opportunity if the consolidation is cut short. In fact, in the case of LUV, if the market wants to move higher from here right away, the first upside target is the 200 day moving average, a near 7% gain. A bullish market tailwind that would push prices even higher, point to the chance of it filling both open gaps made during the most recent decline which makes it a much more compelling (20+%) opportunity.