Shares of industrial stocks as a sector have underperformed the broader U.S. stock market since January. This relative weakness has also manifested itself in absolute weakness, and some stocks such as Boeing Co (NYSE:BA) are increasingly at risk of seeing more reversion to the downside. This sets up well-defined trades to the short side for active investors and traders in BA stock in particular.
One of the concepts I often discuss in this column is that of steep charts/slopes that then go parabolic, i.e. vertical. When this takes place then buyers are usually not too far from getting exhausted, which then leads to the stock in question trotting sideways at best but often beginning to correct — or mean-revert — to the downside.
BA Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
This phenomena can clearly be seen on the longer-term chart of BA stock. Note that after consolidating from 2014 into the fourth quarter of 2016 the stock began a steep ascent. By December of 2017 the stock had reached the upper end of a longer-standing channel. But the momentum did not stop there as the stock kicked gears into vertical overshooting mode in January 2018 and overshot said channel (black parallels).
The MACD momentum oscillator at the bottom of the chart remains near record overbought territory despite the stock’s choppy sideways to lower movement over the past couple of months.
From this angle BA stock over time could have plenty more mean-reverting to do to lower.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that when Boeing reported its latest batch of earnings last week on April 25 its stock price failed to break higher, and in fact saw further marginal weakness over the most recent couple of trading days. The big question in my eye through the lens of technical analysis is whether BA stock at this point will soon confirm a lower high on its charts … a lower high versus its late February highs.
At this juncture, traders have both well-defined support and resistance on the charts. Resistance comes in around $345 while support lurks around $323, which coincides with a simple up-trend line as well as the stock’s blue 100-day simple moving average.
Swing traders could look to buy BA stock on a break past resistance and short the stock or leg into bearish options trades upon a break below $323. On the downside, a next profit target closer to $300 makes sense once a short-side trade triggers below $323.
Check out Anthony Mirhaydari’s Daily Market Outlook for May 1.
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