Chris Johnson

Delta, We Have Some Chart Turbulence

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So Delta (DAL) and Northwest finally got the go-ahead to merge, creating the world's largest airline. These two join with U.S. Airways (LCC) and America West in the airline merger dance.

Next up? Continental (CAL), which is rumored to be joining with either American or United. This comes at an interesting time for the industry, which is reveling in lower oil prices.

An 'Overhead' Shift

DAL got a nice bump in early trading, gaining around 17%. But there's some turbulence overhead that could put a ceiling on extended gains. Look at the chart below and it's obvious that DAL has had great success … until it hits the $10 level.

I count five different rejections at the $10 level in just the past three months. On the other hand, $7.50 appears to be a solid support level. That's the site of the 100-day moving average, which is rising for the first time since the company emerged from bankruptcy in April 2007.

DAL Flying High? Perhaps Not for Long

Something else to consider is DAL's option configuration. About 22,000 November calls sit overhead at the $10 strike, the second-heaviest site of call open interest. Heavy call strikes typically are difficult for a stock to overcome, especially one that has a history of struggling at that strike.

On the other hand, the $7.50 strike is home to the second-highest number of November puts. Put options usually provide a foundation. So, seeing DAL trade between $7.50 and $10 (which is a wide range on a percentage basis) is not that surprising.

The bottom line is to look for a few more percentage point of upside before resistance at $10 kicks in. That's when it's time to short.