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Trade of the Day: Boeing (BA)

Stocks should rev up in April, including this aerospace giant


Historically, stocks tend to go up in April; I have to admit that there is no special reason for it, other than the history books show that they do. My guess is that it has to do with analysts’ tendency to underestimate first-quarter earnings — especially in low-growth environments like the present – which makes it easy for companies to beat the low bar.

If that is the case, it would certainly bode well for this year, because analysts have been more morose than usual about first-quarter earnings. They’ve reduced their estimates due to fears that an unusually harsh winter pushed down demand for big-ticket items like cars, trucks, refrigerators, factory capital equipment and both leisure and business travel.

Yet I suspect that, once again, stocks will beat the buzzer and clock in with surprising gains. Companies know all the tricks, and are not afraid to use them, from increasing productivity another notch when no one thinks that it’s possible, to keeping employee count low and stock buybacks high.

As a result, stocks are likely to fulfill their usual April destiny and climb higher. And if there is a big decline in the next two weeks into a mid-month low, then that would be the best time to load up for the typical April awakening. The ace data analysts at Bespoke Investment Group found that in the last 20 years, the average April gain in the Dow was 2.7%, with 70% of months seeing positive returns. I see no reason why that cannot happen again, and here’s a recommendation to help make sure you capture the gains.

Boeing (BA) is finally emerging from its two-month slumber that began when the shares fell back in January after its fourth-quarter 2013 earnings report was not quite as amazing as expected. It then suffered further upon news of trouble with the wings of its new Dreamliner jet and the uncertainty over the fate of Malaysia Airlines 777. But, like its other aerospace/defense peers, it has caught a bid in recent days. I would not be surprised to see Boeing take flight from here and regain its late-December altitude.

Buy the BA May 17th $125 calls at $5.35 limit, good till canceled. If filled, set up to sell half of the position at initial target $7.00, and hold the second half for further gains.

Jon Markman operates the investment firm Markman Capital Insights. He also offers a daily trading advisory service, Trader’s Advantage, and CounterPoint Options, a service that helps individual traders make steady, consistent profits with volatility-related instruments.

Follow Jon Markman at Google+.

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