Market-leading large-cap Boeing Co (NYSE:BA) suffered a shot across the bow yesterday. The cannonball toss has shareholders running scared and buyers abandoning the airship. It was a 747-sized distribution day that sent BA diving through support and the 50-day moving average.
For traders banking on Boeing shares to continue carrying the Dow Jones to the promised land, it’s time to re-assess.
Boeing Stock Chart
The weekly chart remains a bullish force to be reckoned with. Despite this week’s turbulence, BA is still cruising above the rising 20-week moving average, and there’s a chance that support at $317 could save the short-term uptrend. However, bearish signs are beginning to mount.
Consider these the top two:
First, momentum is waning. The latest swing high suffered an RSI divergence showing the bulls’ strength is waning. And, believe it or not, with this week’s slide, the RSI has fallen to its lowest level since October 2016.
Second, volume patterns are ominous. BA has now experienced three distribution weeks in the past six. That’s more selling pressure than we’ve seen since early-2016 and could signal the easy money has been made, and shareholders need to strap in for a bumpier ride moving forward.
The bears’ grip tightens as we turn to the daily chart. Momentum divergence signals in the RSI are even worse. Plus, the RSI has officially entered the bear zone beneath 50. And speaking of 50, the 50-day moving average caved yesterday, unable to hold firm amid the onslaught of sellers.
Bottom line: Until Boeing stock can rise back above resistance at $355 the uptrend is broken.
The BA Trade
Traders looking to capitalize on Boeing stock’s continued bearish behavior could sell call spreads. Deploying the April $360/$365 bear call spread for around 70 cents credit should do the trick. Consider it a bet that BA will remain below $360 for the next few weeks. If it does, you’ll capture the 70 cent reward. The initial cost (and risk) is $4.30. To minimize the damage if the stock somehow finds its footing, exit on a pop above $360.
As of this writing, Tyler Craig didn’t hold positions on any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.