Southwest stock forecast: Watch this price as turbulence escalates

Southwest Airlines (NYSE: LUV) stock price is facing strong turbulence as concerns about its exposure to Boeing escalate. It plunged by more than 14% on Tuesday, reaching its lowest point since January 17th. It has dropped by more than 17% from its highest point this month.

Southwest Airlines, one of the biggest American airline companies in the world, is in trouble as Boeing moves from one crisis to another. The company has experienced a series of mishaps in the past five days and there is a likelihood that this trend may continue.

Southwest, as I wrote on Tuesday, is highly exposed to Boeing because of its strategy. As a low-cost carrier, the company uses one plane model. In this case, it owns hundreds of Boeong 737 planes. By owning one model, the company makes substantial savings, especially on training and workers.

There are signs that Boeing will get in trouble for a long time, a move that could affect its deliveries. In Southwest’s case, the company expects that it will receive 46 737-8 aircraft this year, down from the expected 58. 

Southwest is facing more challenges, which explains why its stock has plunged by over 54% from its highest point in 2021. Unlike in the past, when the company was one of the best airlines in customer satisfaction, Southwest has received poor customer ratings recently. 

The most recent report placed it at number 2 after Alaska Airlines. That’s mostly because of its old technology, which led to major outages in 2022 and 2023. In the aftermath, the company is now spending $1 billion to solve the crisis. It is also spending more on its pilots.

Southwest’s profits are also not doing well. Its net income dropped from $977 million in 2021 to $465 million in 2023. It even made a $250 million loss in the fourth quarter even as other airlines did better than expected.

The company believes that this year will be a challenging one as leisure demand remains challenging. Its management also expects that it will make a loss this quarter and then turned a profit going forward. 

Therefore, the question is whether Southwest’s stock price will bounce back in the coming months. I believe that this is a good company that is going through turbulence and that it will likely come out stronger in the long term. In the near term, however, I suspect that the stock will be a bit volatile as Boeing woes mount.

Turning to the weekly chart, we see that the LUV stock price bottomed at $21.80. This was an important level since it coincided with its lowest swing in May 2020.

The stock then started recovering but found a strong resistance at the 100-week Exponential Moving Average as the Boeing issue started. It now remains below all moving averages, signalling that bears are in control.

Therefore, the outcome for the stock will depend on what happens after it drops to the key support at $27.76, its lowest swing in May last year. A drop below that level will signal that bears have prevailed and open the possibility of it crashing to $21.79, the lowest point in 2023.

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