What happened

Stock markets continued to recover from last week's sell-off on Tuesday, with the Dow, S&P 500, and Nasdaq all up 2% or more in late-morning trading. Joining in the rally (surprisingly) are cruise stocks Carnival (CCL -0.42%), Royal Caribbean (RCL 1.23%), and Norwegian Cruise Line Holdings (NCLH 0.66%). As of 11:35 a.m. ET today, they were up 11.5%, 11.7%, and 12.6%, respectively.

3 cruise liner ships lined up abreast in port.

Image source: Getty Images.

So what

The latest news from cruise land was not great. On Friday, industry bellwether Carnival announced a massive miss on its third-quarter earnings report -- $0.65 per share in losses, much worse than Wall Street's predicted loss of $0.13 per share -- and revenue that was a whopping $800 million below projections. Adding to investors' misery, Carnival warned that the fourth quarter is shaping up to be below average for bookings, and that the company is anticipating another loss.

Carnival, along with Royal Caribbean and Norwegian, took the news on the chin, falling as much as 23% (Carnival), 18% (Norwegian), and 13% (Royal Caribbean). The latter two recovered a bit on Monday in something of a relief rally, but Carnival continued sinking as three separate analysts cut their price targets on the stock. But with Carnival all but ruling out the chance of a return to profitability this year, the prospects for other cruise lines doing any better in this competitive industry look grim.  

Now what

So why are these stocks going up today? The most logical answer is that short-sellers have decided that after betting against the industry and winning that bet, it's now time to take chips off the table, close their short positions, and buy back Carnival, Royal Caribbean, and Norwegian shares to return to the investors from whom they were borrowed.

That necessary buying activity would explain why cruise stocks are rising today in the absence of any good news for the industry. In fact, Carnival just caught another price-target cut today, with Morgan Stanley saying the $7.70 stock is worth only $6 a share.  

There is one possible positive catalyst on the horizon. Investors will need to wait nearly a month for earnings reports from Royal Caribbean and Norwegian that could potentially contradict the bad forecast that Carnival issued last week, but on Thursday, they might get at least a preview of good news. Norwegian Cruise Line plans to hold its 2022 investor day Thursday, and is inviting shareholders to submit questions.

After last week's Carnival report, many of the questions are downbeat. According to Cruise Industry News, the No. 1 question from investors is what are Norwegian's prospects for growing revenue. That's followed closely by queries about its debt load (the lowest in the industry, but still a hefty $14 billion) and bankruptcy risk.

Depending on how well Norwegian fields these questions later this week, investors could find reasons for optimism about the cruise line, and maybe even Royal Caribbean.

Tune back in Thursday to see if Norwegian is able to keep today's rally going.