Home > Stock Analysis

Honeymoon Is Over For Hotel Stocks

Posted: Jun 25, 2009 09:22 AM by Casey Murphy

Tickers in this Article: SHO, LHO, HOT, HST

In active trading, long-term moving averages are a common tool used to track changes in the trends of financial assets by smoothing out day-to-day price fluctuations, or noise. Once the price of an asset falls below an influential level of support, such as the 200-day moving average, it is not uncommon to see the average act as a barrier that prevents the bulls from pushing the price back above that average. A stock that trades below its 200-day moving average is deemed to be in a long-term downtrend and any move toward the average, as shown in the chart below, is often used as a sign to take profit; many short sellers will use these averages as entry points because the price often bounces off the resistance and continues its move lower.

Get Free Stock Analysis By Email

Let's take a look at the charts of a few major hotel chains; they are nearing the resistance of their respective 200-day moving averages, which has been influencing their share prices. Traders will expect the downtrends in these stocks to continue until the price is able to make a sustained move above the identified barriers.

Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT) - Taking a look at the daily chart of HOT, you'll notice that it is trading below the resistance of a nearby 200-day exponential moving average, which is a barrier that has controlled the direction of the stock since mid 2007. The bulls were briefly able to send the stock above the 200 EMA two weeks ago , but recent weakness has sent the price back below. The chart clearly shows that the bears are in control of the longer-term direction and it wouldn't be surprising to see many bullish traders wait until the price closes above the combined resistance of the 200 EMA and the nearby descending trendline. The proximity of these resistance levels is technically significant because it will be used by the bears to confirm the strength of the downtrend. In addition, you'll notice that the MACD indicator has recently crossed below its signal line. This bearish crossover is a common technical sell signal used by short-term traders and is another reason why the bulls will want to steer clear of this stock until they get confirmation that the trend is ready to reverse.

Host Hotels & Resorts Inc. (NYSE:HST) - HST is another hotel chain that briefly broke above the resistance of its 200-day exponential moving average before dropping back below due to recent market weakness. As you can see from the chart below, this stock's volatility has recently picked up as the bulls have tried hard to reverse the downtrend. Unfortunately for the bulls, the resistance that has appeared as a result of the combination of the descending trendline and the long-term moving average has proved too strong and the price has dropped off as a result. We expect short-term traders to continue holding a bearish outlook on this stock until the price is able to close above its current resistance levels.

Sunstone Hotel Investors Inc. (NYSE:SHO) - Taking a look at the chart of SHO, you'll notice that it is similar to HOT and HST. This company is trading below a level of resistance that it has tested several times this year (shown by the black arrows). In most cases, traders will take profits off the table as the price nears the 200-day moving average (as was the case today); bearish traders may take a short position with a stop loss slightly above the trendline. A break above the resistance level would be a technical cover signal for those traders, and a signal that the bulls are taking control of the momentum. Most traders expect the bears to remain in control. If things continue as they have in the past, the bears should be able to send the price lower off of these levels. Another hotel stock with a chart that is looking extremely similar to the ones mentioned above includes LaSalle Hotel Properties (NYSE:LHO), which suggests that the best strategy moving forward may be to wait for resistance levels to be broken, signaling a turnaround in this industry.

Add Your Two Cents
What do you think will happen with the stocks within the hotel industry? Will the 200-day moving averages keep these stocks in a long-term downtrend? Be sure to join me in the Free Investopedia Stock Simulator to share your thoughts and to see what other investors are buying.

For further reading, see the Moving Averages Tutorial.

By Casey Murphy

Have a Great Day!

Casey Murphy is the senior analyst at Investopedia.com and is a graduate of the University of Alberta School of Business. He specializes in technical analysis and is dedicated to uncovering profitable trading opportunities. Click here to join Casey in Investopedia's free stock picking community.

Rate this Article: Your Rating: Overall Rating: Vote Now!

MORE STOCK ANALYSIS