Although Carnival (NYSE: CCL) and the cruise ship industry practically represented the poster boy of all things that could go wrong with the COVID-19 disaster, the company has steadily moved out of the doldrums. For example, over the past 52 weeks, CCL stock has gained a hair over 44%, reflecting resurgent fundamentals.
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Earlier this year, Carnival reinstated its quarterly dividend of 15 cents per share, with initial payments made on Feb. 27 (to shareholders of record as of Feb. 13). At the time of the announcement, the cruise ship operator reported a record $4.5 billion in operating income, along with an improving balance sheet. This development caused CCL stock to jump higher.
On the consumer front, demand has been incredibly robust despite obvious headwinds, such as geopolitical flashpoints and lingering economic challenges. Perhaps most impressively, nearly 85% of 2026 sailings have already been booked, leaving a smaller amount of inventory available compared to the same period last year. That basically means Carnival has genuine pricing power, positioning CCL stock for future growth.
Still, because of the unique obstacles of 2026, Carnival stock hasn’t exactly benefited consistently from the optimistic news. Mainly, CCL is down 11% on a year-to-date basis, which has absorbed economic concerns related to the Iran conflict. At the same time, it’s also fair to wonder whether the red ink is just a temporary hiccup. Notably, shares are up more than 12% in the trailing month.
Another technical reason to consider keeping the faith in CCL stock despite some choppy waves this year is its efforts to simplify the company’s dual-listed structure (DLC). This unification into a single New York Stock Exchange (NYSE) entity should simplify governance and reduce legal and compliance costs.
It might not entirely move the needle, but S&P 500 trackers and other passive exchange-traded funds may be mathematically forced to increase their weighting on CCL to reflect the larger, unified market capitalization. Further, the decision also allows Carnival to avoid paying for two sets of auditors, thus reducing corporate bloat.
Using a Discrete Inductive Model to Trade CCL Stock
While Carnival’s narrative has certainly pivoted away from the dark days of COVID, the relevant bullish factors discussed are well-known catalysts. Unfortunately, the harsh reality is that if you’re hearing the news from me, the information is downstream. This means that the underlying press release has already been disseminated to the public, and multiple editorials have provided various angles on the topic.
Put simply, I’d be very surprised if the fundamentals above haven’t already been priced into the current CCL stock price. However, there is one area that regular retail traders can receive upstream information — and that’s through discrete inductive models that have to reach mass public adoption.
Let’s begin with the concept of induction, which is a fancy term for pattern recognition. Inductive models seek to better understand the probability of future events via the uniformity of nature, the assumption that future events mimic the past. Why do we believe that the Earth revolves around the Sun? Because we’ve observed this pattern over and over again throughout human history.
Indeed, forecasts about the unknown future are necessarily inductive, including technical analysis. You may ask yourself, why is the head-and-shoulders pattern bearish? Apparently, the original practitioners of the discipline observed multiple heads and shoulders and determined that when this pattern materializes, there are higher odds of a downturn.
That’s an inductive view of the market, but the problem with technical analysis is that the myriad patterns are open to interpretation. You could have two analysts look at the same chart and come up with five different conclusions. Essentially, technical analysis lacks an arbiter to officially determine what the patterns are, creating vast debates.
To get around this dilemma, I use a discretized model where the input is not a scalar signal (share price) but a discrete one. While this doesn’t eliminate criticisms of the inductive philosophy itself, it does at least create an arbiter for the inputs.
In my analysis, I view the equities world through a Markovian lens; that is, forward probabilities depend largely on the current state of the system. I define a state as a 10-week snapshot of weekly candlesticks. Therefore, to find what the forward distribution might be for the future state (the next 10 weeks), we need to consider what the current state (the last 10 weeks) is.
Identifying a Tempting Trade for Carnival Stock
Using a dataset going back to January 2019, a random long position in CCL stock held for any 10-week period is likely to generate a neutral to slightly bullish bias. This pensiveness is to be expected given the disparate economic and competitive cycles that Carnival had to navigate over the past few years. Specifically, out of 362 rolling 10-week sequences, 182 of them (at the end of the period) rose above the starting point.
Basically, we’re looking at an exceedance ratio of 50.3%, which is not anything to write home about. If you were to bet on CCL stock simultaneously across 100 parallel universes, you’d statistically only come out a winner 50 times. Further, the forward 10-week distribution isn’t all that great, landing between $26.90 and $27.50 (assuming a starting price of $27.17, Friday’s close).
However, we’re not interested in trading Carnival stock based on its aggregate but rather under the specific condition of its current state. In the last 10 weeks, CCL stock printed only three up weeks, leading to an overall downward slope. This 3-7-D signal statistically has a different forward distribution, with the exceedance ratio soaring to 71%.
Now, it must be stated that we’re talking about small sample sizes here. Nevertheless, it does appear that under 3-7-D conditions, buy-the-dip sentiments dominate the discourse. Moreover, the anticipated forward distribution would likely place Carnival stock between $24 and $34, with probability density peaking between roughly $28 and $30.
While it’s a risky proposition, I’m very tempted by the 29/30 bull call spread expiring June 18. For a net debit of $38 per spread, traders are hoping for CCL stock to rise through the $30 strike at expiration. If so, the maximum payout would be $62 or just over 163%.
Now, a word to the wise: just because the earth has been observed to revolve around the sun does not mean that this orbital pattern is logically necessary; it’s a contingent fact about our universe. In other words, there is no purely logical justification for the principle of the uniformity of nature.
Of course, that’s absolutely the case with the wild equities and options markets. However, with the observed disparity in performance relative to baseline, aggressive speculators may have a rational case for considering the 29/30 bull spread.
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