IAG Share Price is Extremely Oversold. Relief Rally Possible

Summary:

In this article, we explain why the IAG share price is extremely oversold and what to expect in the near term. A relief rally is possible

The IAG share price retreated sharply on Monday as investors continued worrying about the Delta variant and the ongoing restrictions in Europe. The stock declined to 176p, which was 20% below the highest level this year. Other airline stocks like EasyJet and Ryanair declined sharply also.

What happened. Europe has made a lot of strides in its battle against the coronavirus pandemic. Many countries have ramped up their vaccination drive. However, the Delta variant is also spreading fast, putting significant risks to the economy.

In statements yesterday, some European countries like Spain and Portugal announced new measures to curb the strain’s spread. The countries will start requiring travellers from the UK to go to quarantine. This will likely lead to sluggish demand for air tickets to the region especially in the peak season. As such, investors believe that the aviation industry will record a slower recovery than what they were expecting before.

IAG share price analysis

In my forecast on the IAG stock last week, I warned that the shares would soon stage a major breakout. I pointed to the symmetrical triangle pattern that was forming.

Today, looking at the four-hour chart, we see that the shares made a major bearish breakout below the triangle pattern. It also moved below the 50-day and 200-day exponential moving averages while the Relative Strength Index (RSI) has dropped to the oversold level of 18. This is the lowest it has been in the past few months.

Therefore, I suspect that the shares will stage a relief rally as investors downplay the impact of the variant. As such, the stock could retest the psychological level of 190p and then resume the downward trend.