Aggressive Traders Looking for a Rebound Should Consider Carnival Cruise (CCL) Stock

Generally, a security that loses more than 9% in the first few months of the year doesn’t inspire confidence. That’s especially the case with cruise ship operator Carnival (CCL). Not only has CCL stock underperformed, the company has also ignominiously attracted an 88% Strong Sell rating from the Barchart Technical Opinion indicator. Still, there might be a contrarian play here waiting to be exploited.

No, I haven’t lost the plot (at least not completely). Obviously, with the Iran conflict at the forefront — along with the implied economic catastrophe looming if a resolution isn’t found soon — the concept of pushing a discretionary trade isn’t appealing. However, we must also consider the broader reality. Outside of a chaotic kinetic event, people are still going to want to travel.

From a narrative angle, cruise ship operators provide relative value. True, rising energy costs tied to the war present a potential headwind for CCL stock. If Carnival and the cruise ship industry are forced to raise fuel surcharges, that would impose a kink on the value-for-dollar argument. Still, that headwind would be distributed to other competing travel mediums — it’s not an exclusive burden awaiting CCL.

We should also consider the physics angle. Cruise ships enjoy the margin of slowing down to save fuel, a practice known as “slow steaming.” By reducing speed by a small amount, operators can enjoy a significant boost in efficiency. On the other hand, airliners simply don’t have that magnitude of luxury, as an airplane must constantly generate lift to stay in the air. As such, a certain forward speed must be maintained.

Again, that’s not to say that CCL stock wouldn’t be affected by higher fuel costs. But it’s also critical to point out that the industry has tools to mitigate such challenges while addressing the persistent post-COVID travel demand.

Using Inductive Inference to Trade CCL Stock

Another point to consider regarding the contrarian bullish position of Carnival stock is inductive inference. Induction simply means a method of analysis that starts with specific observations and infers from this a general rule or theory. All forecasts of the unknown future are inductive because they rely on the uniformity of nature — the assumption that the future will behave like the past.

It’s important to realize, though, a critical caveat. While grounded, evidenced induction involves pattern recognition, there’s no guarantee that these patterns will resolve as expected. Just because you see a thousand white swans does not mean that all swans are white — once a black swan appears, any presumed absoluteness of an inductive model collapses on the spot.

Nevertheless, in the financial market, induction is impossible to avoid. In other words, there is no claim, model or signal that logically compels a stock to act in a certain way. The best that we can do is to rely on probabilities, not certainties.

Now, one of the fascinating aspects of CCL stock is that, on average (using a dataset extending back to January 2019), a 10-week long position typically features a limited distribution. If we peg CCL stock at its current spot price, a 10-week return would likely range between $27.50 and $28.50.

However, what is also observed is that different starting positions generate different forward distributions. In the case of the technical posture of CCL stock, in the last 10 weeks, the security printed only three weekly positive candlesticks. Under this specific signal, the forward distribution would be expected to widen considerably, landing between roughly $25 and $34.

Because the market has a tendency of reacting bullishly to extreme bearish pressure, there’s a solid chance that traders can exploit this statistical phenomenon.

Targeting a Specific Debit-Based Idea

Looking at Barchart’s Vertical Spreads screener, I’m intrigued by the 29/30 bull call spread expiring June 18, 2026. This debit-based trade involves buying the $29 call and selling the $30 call simultaneously on a single execution. The net debit required currently comes out to a very modest $43.

Should CCL stock rise through the second-leg strike ($30) at expiration, the maximum profit would be $57, a payout of 132.56%. While the proposition is arguably enticing, the margin for error is extremely small. Breakeven comes in at $29.43, making the trade unforgiving.

Still, I like the idea based on the inductive observations. As an aggregate of all signals, CCL stock would likely not hit the $30 target. However, I’m not making an aggregate argument; I’m specifically focused on the 3-out-of-10 green candlestick indicator.

Under this behavioral state, Carnival stock’s forward distribution tends to have a bullish bias. With the risk-reward profile shifting favorable toward a particular direction, a debit trade arguably makes the most sense.