Shares of industrial stock Boeing Co (NYSE:BA) have fallen just shy of 10% over the past few trading days, at least in part due to trade war fears with China. On the charts, this now increasingly looks like the stock is capped for the time being, which in turn sets up a trade idea for active investors and traders alike.
One of the key differences that I like to highlight between my firm and many “stock picking services” is that we like to build “investment themes” that give us general guidelines for areas of the market to look for high probability trades. For instance, for the past two months we have been underweight and/or short industrial stocks as a sector/theme, and thus every time stocks within this space bounced to the upper end of their respective trading ranges, we looked for shorting opportunities.
This type of approach is what many of the pros use, i.e. outfits like hedge funds, because it allows them to stay focused and not take random trades that just pop up there and there.
BA Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Looking at the multiyear weekly chart, we see that BA stock in the October/November 2016 period began to break out of a lengthy sideways consolidation period. All the while, the red 200-week simple moving average held as key support. The stock then exploded higher to the tune of about 140% measured to the recent highs. While the bullish momentum remained intact all the way through, note how far the stock is now removed from said 200 week moving average.
Also note that the most recent rally in the stock that began in April has only produced a lower high in the relative strength index (RSI) at the bottom of the chart in blue.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
Moving on to the daily chart, we see that the recent highs in BA stock in early June matched the previous highs from February. From a trading perspective and considering that on Tuesday the stock marginally closed below its 50- and 100-day simple moving averages this formation on the chart may be labeled as a near term double top.
While the stock could at this point be in immediate-term oversold territory, the price action here in my eye suggests that BA stock wants to visit lower levels still.
Thus, active investors and traders could either short the stock, buy at the money puts or put spreads with options expiring no earlier than August, or sell out of the money call spreads.
A next downside profit target is at $320 while any strong one-day bullish reversal is a stop loss signal from a swing trading perspective.
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