Allegiant Drops After Earnings: Decline or Launching Pad?

| About: Allegiant Travel (ALGT)

Allegiant Travel (NASDAQ:ALGT) sold off sharply post earnings [Jul 22: Bookkeeping - Allegiant Travel Does not Please on Earnings] despite what I thought was a solid report overall. There was some talk of a slowdown in the last month of the quarter (June) but that July had seen a rebound. Whatever the reason, the stock fell, and I bailed on most of the position in case it began a freefall.

I am cutting most of my Allegiant Travel (ALGT) around $42.80. It has been all the over the map today from $41.50s to $43.50s - this name can move a lot on very little volume. I had a quite large loss on this name that has turned into a small loss and I want to keep it that way for now; I'll forgo any more upside until I see how the market reacts after the knee jerk move down. We're down to just a placeholder position at 0.1%

So with a week of time behind us, and realizing that the stock market never goes down anymore, we can now get our position back for a fraction more than the price we sold it, around $43. The last 2 days the stock has held the 50 day moving average intraday and bounced nicely, which is comforting. We're increasing this back to a 2.9% stake.

It "should" be ok as long as it holds $41.50 area, but to repeat - I've only lost money by trying to use technical analysis on ALGT.

As always I hesitate to use technical analysis on ALGT because it's a stock that seems to have a mind of its own. I will say on a positive note, oil has surged the past few sessions and usually when that happens, all airline stocks, including Allegiant, take a hammering. This has not happened the past few days so perhaps that is a good sign. Or it is just a sign that every stock in the universe is destined to go up. Either way, we have a good entry level here and in case of the 100 year flood (i.e. the market goes down) we can escape with minimal damage.

I'll stop out in the mid $41s with most of the position which would only expose us to a 3.5% potential loss. I continue to marvel stocks like this at 10x earnings are ignored while certain casino stocks at now... 140x forward earnings... for 2010 are being bid up daily to the tune of +5%. Momentum trader Nation.

Disclosure: Long Allegiant Travel in fund; no personal position