Insiders and bears have blown the whistle on Boeing Co (BA), and now it’s time for investors to profit from a growing, less-friendly trend in Boeing stock.
Earlier this month Boeing stock investors reacted poorly to news the SEC was investigating the company.
An internal whistleblower accused Boeing of aggressive, but legal, accounting and sales practices related to its Dreamliner aircrafts.
Shares of Boeing stock crashed the next session by more than 12% intraday before finishing off a less severe, but trend-changing, decline of more than 4%.
As fellow InvestorPlace writer Serge Berger correctly laid out, an oversold condition in BA stock into a support area made for a nice-size, quick profit capture for more nimble-minded investors.
But our view is bears have blown the whistle technically on Boeing, and in filling the bearish price gap on lighter volume, BA stock is positioned for a fresh bearish assault.
BA Stock Weekly Chart
The weekly chart for Boeing appears to show a stock that’s been technically grounded and headed for lower prices as part of a developing bearish trend.
After building a year-long weekly base in 2014, Boeing stock broke out to the upside in early 2015. All-time-highs were established, but ultimately a drawn out multimonth failure occurred.
The corrective reversal culminated in a bullish base count reset for Boeing stock during the August flash crash. That’s bullish in that the price action essentially cleansed BA stock of weaker hands.
The bad or concerning news is an ensuing suspect V-bottom and lower high which attempted but failed to hold the original breakout level from 2015. Those are signs a new bearish trend is now in place in Boeing stock.
Over the past two months, BA stock has all but confirmed a new bearish trend with a second lower low put in place on heavy distribution. Now, with a weaker volume, counter-trend rally pushing into an area of congestion or resistance supplied by existing Boeing stockholders, the path of least resistance appears to be lower.
Our initial downside objective would be the $100 – $102 area, which factors in a test of the flash crash low and psychological support surrounding whole numbers.
Boeing Stock Long Put Strategy
For traders agreeable with the presented bear case in Boeing, the April $110 put looks attractive.
Priced for $2.45 with BA stock just south of $117, the out-of-the-money put would require a move of about 8% on an expiration basis to break even. But a quicker move towards the strike could invariably lead to paper profits.
And if Boeing stock were to test our initial downside objective of $100 – $102, the put would be valued from $8 – $10 intrinsically and amount to a return up to about 300%.
Additionally, with equivalent Boeing stock risk of just more than 2% per contract, the put offers bears a secure way to manage their position without having to rely on additional and sometimes slippery stop loss measures.
Having said that, we’d look to exit if the BA stock put lost 50% in value.
Bottom line, using this type of stop, if at all possible, should allow sufficient wiggle room to participate in a bearish move in Boeing stock without overstaying the situation should BA begin to take off convincingly.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
