Carnival shares have certainly experienced considerable volatility the past few weeks, rebounding from 3-year lows in early July only to be knocked down a second time. Given an unusually aggressive analyst downgrade, possibility of high long-term oil prices and a stunningly scary national economy the pps is actually holding up pretty well.

The short-term technicals indicated a buy signal when the stock bounced after the downgrade news, moving back above the $34 mark.

PPS rode below the lower bollinger band, RSI turned up, MACD line turned up and Slow Stochastics headed above the 20 mark (note arrows in chart, click for details).

Today, CCL has resistance in the lower $37's and I would sell a move into that area.

In the mid-term range the stock is likely to test the $30 area again. A move below support at $34 indicates a short sell opportunity with a cover at $30.

Deutsche Securities massive one time -39% drop in price target for Carnival to $32 from $52.50 was intriguing.  He cited Carnival’s “need [for] a ‘strategic shift’ to cope with high fuel prices and shipbuilding costs.” Suggesting “with rising shipbuilding costs exacerbating this issue, we believe that Carnival needs to shift to a returns-driven philosophy, where the group raises cruise prices and reduces commissions.”

Interestingly with all the recent shipbuilding activity, there comes a danger of overbuilding - if one company adds a ship, then the other company needs to add one too just to maintain its market share. The challenge will be to know when to stop short of "mutually assured over capacity."

Long-term it is widely agreed there is much positive growth remaining for cruise lines. But with a tougher economy as a possibility over the next couple of years, and higher fuel costs cutting into margins, the danger remains that the more expensive cabins will not be filled or require discounting. Cruise lines need to increase the number of high ticket paying passengers through marketing. But higher end travelers tend to be more fickle, since they have many more options available to them.

In a related note, Susquehanna Financials monthly survey of cruise travel agents found that advance cruise bookings in August fell 6.1% year-over- year, the worst decline recorded since the survey began three years ago. Prices ticked up 2.9%.

This exactly mirrors and supports the findings from both the August 2008 CruiseSearch Index and Cruise Price Index.