Southwest Airlines Soars 8.14% On Heavy Volume As Technicals Signal Bullish Continuation

Recent Price Action
Southwest Airlines (LUV) closed at $37.35, surging 8.14% with three consecutive bullish sessions totaling a 10.47% gain. Volume spiked to 23.7M shares during this breakout, significantly above recent averages.
Candlestick Theory
A strong bullish marubozu candle formed on July 10th, closing near the high ($37.35 vs. high of $37.85), confirming buying momentum. The three-day rally resembles a "Three White Soldiers" pattern, signaling continuation potential. Key resistance now shifts to the psychological $38.00 level, while former resistance near $34.50 (June swing high) becomes immediate support. The May low of $28.08 and April peak of $37.85 frame the broader range.
Moving Average Theory
The 50-day MA ($33.80) crossed above the 200-day MA ($32.10) in late May, confirming a long-term bullish trend. Current price trades 10.5% above the 50-day MA, suggesting potential overextension. Shorter-term averages (50/100-day) are rising steeply, supporting the uptrend, though a consolidation near $35.00 may develop to reduce divergence from longer MAs.
MACD & KDJ Indicators
MACD (12,26,9) shows a rising histogram above its signal line but displays negative divergence: July's higher highs weren't matched by equivalent MACD peaks, warning of weakening momentum. KDJ (14,3,3) is overbought (K:89, D:85, J:97), supporting the MACD divergence signal. This confluence suggests a near-term pullback or consolidation is likely.
Bollinger Bands
Price breached the upper band ($35.80) on July 10th, historically preceding short-term reversals. Bandwidth expanded sharply during the breakout, indicating volatility surge. A retest of the 20-day moving average (mid-band, ~$34.60) would align with typical mean-reversion behavior after such an expansion.
Volume-Price Relationship
The breakout was validated by volume tripling the 20-day average (23.7M vs. ~8M), confirming institutional participation. However, declining volume during the prior consolidation (late June) and divergence between rising prices and falling volume in early July highlight sustainability concerns. Close monitoring of volume on pullbacks is critical to assess conviction.
Relative Strength Index (RSI)
The 14-day RSI (68) approaches overbought territory but hasn’t breached 70, avoiding a classical warning. Notably, RSI failed to confirm the July 10th price high (peaking at 75 earlier in the rally), adding to bearish divergences. While not oversold, RSI’s hesitation suggests exhaustion.
Fibonacci Retracement
Applying Fib levels to the swing low ($28.08 on July 25, 2024) and recent high ($37.85):
- 23.6% retracement: $35.30
- 38.2% retracement: $34.40 (aligns with 100-day MA and prior resistance)
- 50.0% retracement: $33.40
- 61.8% retracement: $32.50
Confluence exists at the 38.2% level ($34.40), combining Fib support, the 100-day MA, and psychological support, making it a high-probability bounce zone if tested.
Confluence & Divergence Summary
Multiple indicators concur on near-term consolidation risks: bearish divergences (MACD, volume, RSI) coincide with overextended momentum (KDJ, Bollinger Bands). However, the bullish MA crossover, valid breakout above $34.50, and volume-backed price surge maintain the primary uptrend. Probable scenarios include a shallow pullback to $35.30-$34.40 (Fib/MA support) before renewed upside. A sustained break below $34.40 would invalidate the short-term bullish structure.