Technical Indicators Signal Bearish Sentiment for Spirit Airlines (NYSE: SAVE) Amid Stock Plunge, 1 month ago

Spirit Airlines Technical Analysis

The technical indicators for Spirit Airlines, Inc. (NYSE: SAVE) show a bearish sentiment following a sharp drop in its stock price. On January 16, 2024, SAVE closed at $7.92, a significant decline of 47.09% from the previous trading day. The price fluctuated between a low of $5.86 and a high of $15.52 on that day, indicating extreme volatility, which is also emphasized by an unusually high Average True Range (ATR) of 17.68.

SAVE's Relative Strength Index (RSI) points to an oversold condition with an RSI14 at an extremely low level of 5. Typically, an RSI reading below 30 indicates that a stock may be oversold and that a trend reversal could be imminent. However, investor should be cautious as an RSI this low could also signify persistent downward momentum or panic selling.

The stock is currently trading well below both the 50 Day Moving Average ($13.8758) and the 200 Day Moving Average ($15.8915), which can also be interpreted as bearish signals. The Moving Average Convergence Divergence (MACD) stands at 0.586517, which may suggest a declining trend. However, given the significant price drop and volatile trading, this indicator might lag behind current events.

There appears to be no immediate technical support for the stock as it has breached previous support levels, and the nearest resistance lies at $8.78. With such potent downward momentum, it is unclear if the resistance can halt the decline.

Fundamental Analysis

Fundamentally, Spirit Airlines is facing considerable challenges. The news of a federal judge blocking a significant acquisition bid of $3.8 billion by JetBlue has triggered a sell-off with fears that it will be difficult for the airline to progress without the deal. This merger was presumably a strategic growth initiative for SAVE, and investors had likely priced in the potential synergies and benefits of the merger.

The blockage of the merger raises concerns regarding SAVE's financial viability as analysts speculate about a possible bankruptcy scenario. The market is reacting to these concerns, as seen by the significant volume of shares traded, which on January 16, was much higher than the average volume.

Spirit Airlines Spirit's financial health is also under scrutiny, with the latest reported earnings per share (EPS) at a concerning -$4.91, and a negative price-to-earnings (PE) ratio of -1.24, which means the company has been operating at a loss. With the next earnings announcement scheduled for February 5, 2024, investors might be anticipating further clarity on the company's financial position.

Despite the perceived fundamental weakness, analysts' target prices for SAVE range between a high of $35 and a low of $24, with a consensus target of $28.63, suggesting some optimism for its long-term prospects. Additionally, the consensus rating among analysts stands at "Buy" with 6 buys, 3 holds, and no sells, hinting at the underlying value some market watchers still see in the airline.

The dividend yield at 1.26% could be a minor positive aspect for income-focused investors, but this factor is likely overshadowed by the larger issues at hand.

Stock Performance Predictions

For the next trading day on January 17, 2024, and the upcoming week, one could anticipate that the volatility for SAVE will remain high. The overwhelmingly negative sentiment following the collapse of the JetBlue acquisition deal could persist. However, given the oversold condition indicated by the RSI, a technical rebound could occur as traders look for a short-term bounce.

With the fundamental picture looking bleak due to the loss of the merger deal and bankruptcy fears, any rebound in stock price may not reflect a change in sentiment but rather short-term traders taking advantage of oversold conditions.

Overall Evaluation

Taking into account the steep decline, the technical oversold condition, and the fundamental upheaval caused by the failed merger, the recommendation for Spirit Airlines, Inc. (NYSE: SAVE) is a "Hold." While the temptation might be to classify it as a "Sell" given the recent plunge, the extremely oversold RSI could potentially trigger a short-term uptick, and the analyst consensus still currently leans towards "Buy," suggesting a wait-and-see approach leading up to the company's next earnings announcement.

Investors should be wary of the potential for further decline if bankruptcy rumors gain traction or if upcoming earnings reveal a worse-than-expected financial situation. On the other hand, a swift strategic pivot or positive developments might improve market sentiment. Consequently, existing shareholders might prefer to hold until a clearer picture emerges, while potential investors should exercise caution and thoroughly evaluate the risk associated with an investment in SAVE.

Check full Spirit Airlines forecast and analysis here.