Southwest Airlines (LUV) Earnings: Short Positions Surge as Post-Earnings Declines Persist

Southwest Airlines (LUV) consistently sees declines following earnings, regardless of beating estimates. Short positions rise both before and after earnings, and LUV has underperformed the S&P 500.

LUV historically goes down the day after earnings, or once the week after. It usually moves 4% and is expected to more 3.7%.

Interestingly, the stock often decreases even when it surpasses earnings estimates.

Short positions in LUV typically rise before earnings, with a noted increase of 5% this time, and continue to rise afterward.

When LUV's stock price increases, short positions tend to decrease, indicating a similar sentiment between short and long positions.

Currently, the stock is up 1%, suggesting a normal return pattern.

The change in short positions does not influence the return trend, although the stock tends to decline less following earnings when it is higher in that week.

Recently, LUV's short position has tripled and remained stable as the stock price has moved from the lower end to the middle of its historical range.

The last occurrence of such a high short position preceded a 5% rally on earnings, followed by a subsequent 15% decline in the week after.

DAL shows a similar short position trend, having declined after earnings for nine consecutive quarters.

LUV has been trading within a range of $24 to $34 for the past two years, which represents a 34% range; one would expect a mean reversion pattern indicating a wider range of 60%.

In contrast, the JETS index displays a much broader range despite expectations of lower volatility; it also shows an increasing short position.

Notably, LUV has underperformed the S&P 500 by 40% since January and is only up 4% year-to-date.

LUV consistently declines post-earnings with rising short interest. This trend, coupled with its underperformance, signals potential further volatility.

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