Trading Nation

Traders caution against buying travel stocks: 'When in doubt, stay out'

Market experts caution against buying into oversold travel stocks
Market experts caution against buying into oversold travel stocks

Travel stocks are tumbling.

The group led the major averages on the way down Thursday as the broad market erased its gains from the prior session, prolonging a wild week on Wall Street. Cruise line operators Royal Caribbean and Carnival Corp. were the worst performers on the S&P 500, with Royal Caribbean posting its worst daily percent loss since January 2009.

Royal Caribbean and Norwegian Cruise Line Holdings are down over 50% year to date, with Carnival not far behind at a 45% loss.

With travel at the center of attention as the global coronavirus outbreak worsens — and cruise lines in particular feeling the heat given the virus's spread on two Carnival cruise ships — traders are recommending steering clear of the group for now.

"Until we understand whether or not this virus is contained, when in doubt, stay out," Gina Sanchez, founder and CEO of Chantico Global, told CNBC's "Trading Nation" on Thursday.

"We don't know where this goes, and we still need to figure out what the bottom looks like," she said, warning that "the cruise industry, airline industry, hotel industry, they're not going to be able to recoup this later."

For groups like airlines, which also ended Thursday in the red with the U.S. Global Jets ETF (JETS) falling 9%, that damage could mean months of pain, Sanchez warned.

"For some places like the airline industry, that is going to put them back into nonprofitability," she said. "So, I don't know that anything is really attractive right now."

Mark Newton, president and founder of Newton Advisors, agreed that the group was a no-touch for the time being.

"Technically, these stocks still look like an area to avoid in the short run," he said in the same "Trading Nation" interview. "We've seen some very heavy volume on the declines. A lot of them have broken down. Stocks like Carnival are down over 60% just since the highs were made back in January 2018."

Even with that steep drop, Carnival's oversold condition — tracked by its Relative Strength Index, which dropped on Thursday to lows not seen since 2018 — does not necessarily mean buy, Newton warned.

"It's akin to trying to put a golf ball down a flight of marble stairs and get it to stop before the bottom," he said. "It's just very, very difficult."

The transports as a whole remain "a very weak group," Newton said. The Dow Jones Transportation Average on Thursday had its worst day since 2011, falling over 5%.

"We need to see some evidence of stabilization," Newton said. "And until that happens, particularly if the stocks are declining because of the corona — which doesn't seem to be contained, but if anything [is] growing in many countries — it's really wise to step aside and let this group stabilize."