What Will Happen with Ryanair’s Stock as Demand for Air Travel Diminishes?

With the situation still far from being resolved, what can be asserted about Ryanair’s stock price and its most likely future development?

1. Long Term Outlook:

The first significant observation that can be drawn regarding the behaviour of the price action from the weekly chart below is that the recent selloff in Ryanair's stock price was due even before the coronavirus fallout began. Moreover, the coronavirus panic, that grappled the global stock market served as a catalyst for an already expected dropdown in Ryanair's stock price.

This assertion can be drawn judging by the position of the second distribution range (discounting the intermediate re-distribution) in relation to the major resistance level at 16.760. The importance of this resistance level is more than apparent, given that it has already served as a turning point for one false breakdown; one throwback; and also as an upper boundary for the previous re-distribution range.

The underlying price action simply consolidated below the major resistance level at 16.760 during the formation of the last distribution range, without managing to break out above it. This behaviour gave market bears incentives to believe that the bullish commitment at that time was waning and that a reverse in the direction of the price action was imminent.

As it turned out, the coronavirus panic began right about that time, which is why the resulting market selloff served as a catalyst for the formation of the last markdown.

The markdown bounced off slightly above the major support level at 10.160, which served as the upper boundary of the previous accumulation range. This is indicative of increasing bullish commitment, albeit at a moderate pace.

Two potential scenarios come on top as the most likely outcomes of this recent rebound. The underlying price action can either continue heading lower until eventually, it finds support from a new accumulation range further south. Alternatively, the recent correction can keep developing, as the underlying price jumps north and tests the strength of the 38.2 per cent Fibonacci Retracement at 12.460, which is currently acting as a resistance level.

2. Restricted Air Travel and Tanking Oil Prices:

Unfortunately, it is not only routine flights within Europe that are being suspended. As of today, flights to and from areas with confirmed coronavirus cases have been suspended in Jordan; Israel; Georgia; Montenegro; Czech Republic; Slovakia; Hungary; Romania; Malta; Greece; Austria; Spain and Morocco.

The company hasn’t released any official statements concerning the expected deterioration in its operations as of yet; however, the aforementioned disruptions in regular services are bound to have a sizable imprint on the company’s quarterly performance. Thereby, the share price of Ryanair is likely to be impacted negatively in the long run. Moreover, the situation is expected to worsen in the forthcoming days and weeks as the number of confirmed cases in Europe is very likely to continue rising in the foreseeable future.

While the company's productivity is being distorted, one encouraging factor that could at least partially offset Ryanair's costs is the falling crude oil prices. The price of crude oil tanked by almost 30 per cent (11 dollars per barrel) during Monday's trading session, when Saudi Arabia and Russia engaged in bitter disagreement over the appropriate aggregate oil production globally. Subsequently, the two countries began boosting their own productions in an effort to complicate the situation for the other.

The so-called crude oil price war was initiated amidst the general coronavirus fears worldwide and has so far jolted the global capital markets even more. As the adverse market volatility continues to rise, the future of the precious commodity’s price remains uncertain.

And while the situation continues to unfold continually, companies such as Ryanair have benefited from the increased supply of crude oil and its depreciated price. Overall, the fundamentals appear to be tilted towards the downside, favouring the market bears. However, the underlying market momentum appears to be stabilising in the short term.

3. Short Term Outlook:

In the short term, the underlying trend (markdown) has recently become significantly robust, as indicated by the Average Directional Index (ADX). The trending environment favours the continuation of the markdown's development; however, the price appears to have bounced back from the 23.6 per cent Fibonacci retracement at 10.945, which is acting as a support level.

If the price action continues to consolidate, the trending environment is going to be invalidated promptly, and the underlying market sentiment is going to become more undecided.

Despite still being prevailingly bearish, the underlying momentum is losing steam as illustrated by the MACD. This behaviour of the Convergence/Divergence could potentially indicate the early stages in the development of a new directional swing, opposite to the direction of the recent markdown.

The flattening Bollinger Bands on the 4H chart above confirm the previous projection regarding the waning power of the bearish downswing. In addition to becoming flattered, the BB are also becoming increasingly narrower, which is exhibitive of diminishing adverse volatility. Given the context of the current market setup, diminishing market volatility would benefit the likelihood of a price consolidation or even the formation of a new trend reversal.

Finally, the descending channel categorizes the different stages in the development of the markdown. As can be seen, the price action has moved to the upper part of the channel. Moreover, its middle line has now crossed below the 23.6 per cent Fibonacci support at 10.945. This confirms the strength of the support level and predisposes for the eventual trend reversal. Nevertheless, the gathering of all of these pieces of evidence does not necessarily imply that a trend reversal is imminent.

4. Concluding Remarks:

The long-term fundamental factors seem to be favouring the continuation of the current downtrend; however, these could change promptly if a major breakthrough in the fight against the coronavirus’ spread is announced, or if the EU becomes more accommodative of its reeling industries.

The ECB is scheduled to meet tomorrow, and the central bank is anticipated to announce the implementation of urgent countermeasures to support the shaken economy. Meanwhile, the BOE already decided to cut the interest rate and increase the level of liquidity in the economy, which is also likely to help Ryanair as the company is listed on the London Stock Exchange.

The behaviour of the price action against the current major support level is going to shed more light on the likely future development of the stock. Failure to break down below it is likely going to represent an opportunity for the execution of long orders on the anticipation for the formation of a sustained correction next.