So much for the fearfest. For all the hand-wringing surrounding North Korea, the S&P 500 finished unch on the day. Scratch that. She lost a penny — oh the horror. On the brightside, quite a few market leaders fell back providing a few potential sales. Consider Boeing Co (NYSE:BA) shares exhibit A. BA stock, the blue-chip beauty, the king of Dow components, suffered one of its largest down days in months.
If nothing else, these occasional retracements keep buyers honest while offering rare escape routes for misguided short sellers to exit with minimal damage. In case you missed it, we spotlighted BA shares impending pause just last week.
The drop in BA stock provides just the excuse to revisit the stock and map out its next move. I have pit stops to spot and strategies to strategize. Let’s begin.
BA Levels to Watch
With its pull back well underway, the logical question is where the next support level lies. If we can anticipate turning points, then we can participate on subsequent swings. The list of potential support usually consists of prior pivots (highs and lows), gap areas, Fibonnaci retracements and moving averages. While buyers are always on the move, these areas often act as gathering grounds.
Given Boeing’s one-sided ascent, there really aren’t any pivots to consider near the current price. So that particular support spotting method isn’t going to help us. Fortunately, there were a few gaps created during the climb that will soon come into play.
In fact, we’re testing one as I type. The price pop from July 27 created a gap that was just filled by Wednesday’s slide. And that means BA is sitting at its first potential support level right now. Time will tell if buyers step up to defend their turf, but color me skeptical. The extent of yesterday’s damage coupled with the extremely overbought nature has me thinking this dip may keep dipping.
And it would actually be a good thing, as it would further improve the setup and offer an even better risk-reward entry.
After the gap fill, we have the 20-day moving average resting at $225.77. For the uptrend to maintain the momentum of its ascent, BA lovers will definitely want to see buyers step up at this level.
But if they don’t, there’s one more level of note in the vicinity — the unfilled gap created by the awe-inspiring earnings gap on July 26. Let’s call it $223.
A breach of that would warrant some re-assessment, but we’ll cross that bridge when it comes.
And if you’re one of those degenerate Fib lovers wondering where your retracement levels lie, let’s just say they correspond closely with the zones I’ve already identified.
The Bet-Boeing-Won’t-Fall-Too-Far Trade
Right now downside puts aren’t all that expensive. And that kinda makes it challenging to sell far out-of-the-money bull put spreads if you’re looking for high probability profits. But if we can get one more down day (or more), I think we can make something happen. Sell the Sep $220/$215 bull put spread for 50 cents or better. If you want to increase the odds, consider scaling in. That is, sell half of your normal size at 50 cents and then add the other half if BA keeps falling and you can get 75 to 80 cents for the put spread.
The reward is limited to the initial credit received and will be captured if BA is flying above $220 at expiration.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.