Boeing Co (BA) Stock Is Flying a Little Too High for Safety

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After a massive 6.7% rally over the past 11 trading days, shares of Boeing Co (NYSE:BA) are beginning to look a little overextended. While I am certainly not sounding the alarm bells for a big-time pullback in BA, I also feel a period of consolidation is likely overdue for Boeing stock. The comparatively rich valuation coupled with overbought technicals should provide for some short term turbulence.

Boeing Stock: Boeing Co (BA) Stock Is Flying a Little Too High for Safety

The recent orders from the Paris Air Show along with a new initiative into big data called AnalytX spurred BA stock to record highs. InvestorPlace contributor Chris Tyler does a great job delving into some of the fundamental positives surrounding Boeing stock.

One thing Mr. Tyler did not touch on, though, was valuation.

I realize I am old school, but to me, valuation still should kinda matter … especially extremes of valuation. Boeing stock is now approaching a 25 P/E ratio, which is a five-year high. Previous times when BA stock traded at these lofty multiples proved to be significant intermediate term tops in the stock.

From a technical perspective, Boeing stock is assuredly overbought. Nine-day RSI breached the 80 level, which has been a reliable indicator that BA stock is likely getting too far ahead of itself.


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The price action from Tuesday further supports the argument that Boeing stock may have reached a short-term peak. BA traded up to a new high of $201.24 before succumbing to selling pressure and closing lower (and on the lows) of the day at $198.33. This reversal pattern, called a shooting star in candlestick analysis, is a bearish indicator that the previous trend may have come to an end.

As one of the components of the Dow Jones Industrial Average, Boeing stock is also highly correlated to the price movement of the overall market. Given that stocks generally are looking a little tired, I expect some headwinds from lower stock prices to negatively affect BA stock over the next several weeks.

So with Boeing stock looking expensive fundamentally and overbought technically, a short-term bearish call spread is the preferred way to position for a period of consolidation.

BA Trade Idea

Buy BA July $207.50 calls and sell BA July $205 calls for a 60-cent net credit

Maximum gain is $60 per spread with maximum risk of $190 per spread. Return on risk is 31%. The short $205 call strike provides a 2.92% upside cushion to the $199.17 Wednesday closing price of Boeing stock.

As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at timbiggam@gmail.com.

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


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