Chart of the Day: Boeing Likely To Rally Despite Crash Sell-Off
Investing.com | Mar 13, 2019 15:01
Shares of Boeing (NYSE:BA), the world's largest aerospace company, have plummeted more than 11%, to $375.41 at yesterday's close, since the Ethiopian Airlines Boeing 737 MAX 8 crash on March 10, the second fatal accident for this model in just five months. However, while many investors are unloading the stock, Ivan Feinseth, director of research at Tigress Financial Partners, thinks this might instead be time to buy.
Feinseth told CNBC’s “The Close ” he considers Boeing’s selloff a buying opportunity; the company has a 20 year backlog for planes, “and you never see mass cancellations” after a crash. He said he doesn’t see the crash as systemic, and the pattern of airline safety after a crash is surer because such an event triggers comprehensive quality control checks.
On the other hand, the 737 MAX 8 jet is the company’s best-selling plane and cashflow generator, accounting for two-thirds of its commercial book. Boeing manufactures 52 planes a month, scheduled to increase to 57 a month later this year, and sees production reaching 62 a month further out. There are 5,100 737 MAX 8 jets on order. Though the cause of the crash hasn't been officially determined yet, this model is a crucial product and the company needs to resolve the issues immediately, or it casts a shadow over its future sales growth.
We agree with Feinseth that the current retreat in the share price creates a buying opportunity—providing there is no overall market downturn (we have been bearish).
The plunge dipped below, but closed for the past two sessions above, the November highs, demonstrating demand at these levels. While the price closed both days below the 50 DMA, it remained above the 100 and 200 DMA, reinforcing the support of that month's peaks. Moreover, there's an even more bullish picture if one takes a step back.
Taking the longer view, the price found support backed up by much more invested demand than is visible via the daily chart alone. With the exception of October, the price hasn't exceeded the $370 level since February of last year.
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However, Boeing’s 2018 win against Airbus (PA:AIR) in the orders race, its duopoly competitor, reversed the supply-demand balance at that price level. In January, Boeing strengthened vs Airbus on reports of solid orders and plans to increase production. On March 1, shares reached a record intraday high of $446.01, closing the session at $440.62, up 36% since the start of the year.
After the bears were wrong at the $370 level, they are less likely to repeat that mistake. Having been right, the bulls are more likely to want to repeat that move. As well, all those on the sidelines who watched the opportunity go by, won’t want to feel that pain again. They're also likely to increase demand.
Note that while the price is below the 50-Day MA, it is well above the 50-week MA, which lends support to the $370 level. Below that, the 100 DMA props up the December lows, with the 200 DMA far lower, placing the main MAs in bullish formation.
The RSI is providing conflicting signals. It failed to advance with the price, suggesting slowing momentum. On the other hand, despite the crash, it found support at the former downtrend line resistance, now a presumed support.
h2 Trading Strategies – Long Position Setup/h2Conservative traders should wait for a new high to form a second peak and trough in the medium uptrend since the December 2018 bottom.
Moderate traders may be content with the price rebounding above $400, both the highest price in the year-long range, posted Oct. 3 at $388.62 as well as above the round-psychological number.
Aggressive traders may risk a long position now.
Trade Sample
- Entry: $375
- Stop-Loss: $370, below the range top
- Risk: $5
- Target: $400, round psychological resistance
- Reward: $25
- Risk-Reward Ratio: 1:5
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