Shares of Boeing (NYSE:BA) have been on a monster run over the past few months. Boeing stock has risen over 33% since briefly breaking $300 last Christmas Eve. The last leg of the rally was due to a solid earnings beat that has taken the stock 12% higher. While certainly the initial take off in BA was warranted, I think the rally has come too far, too fast.
Look for Boeing stock to come back to earth over the coming weeks.
Earnings, as mentioned, were unquestionably a beat. Both earnings and revenues came in well above analysts estimates, sending shares soaring. Boeing is starting to get a little rich on a valuation basis, however. Shares are fast approaching the highest multiple over the past six months with a trailing price-to-earnings ratio of 23. The previous time BA stock traded at such a lofty valuation level was last October, which coincided with a major intermediate-term top in the stock.
Price to sales is at the highest level of the past 10 years and is now well over 2. It is also at the biggest premium to the S&P 500 over that same time frame. Note that price to sales is also a cleaner number than P/E and can’t be manipulated as easily by accounting and buybacks.
BA is looking extremely overbought on a technical basis. Its 14-day RSI is now at the highest level of the past year with a reading of nearly 80. The 14-day Detrended Price Oscillator reached the highest it has been over the past twelve months as it passes 50. Boeing stock is also trading at a massive premium the 100-day moving average of $350.90. Prior instances that shares traded so far above the 100-day were inevitably met with a reversion back toward this average.
Bottom Line on Boeing Stock
In my previous post on Boeing from Dec. 11, I had a bullish opinion on BA stock with shares near the $320 level. I felt BA stock was undervalued fundamentally and oversold technically. Now that BA has rallied $100 points, my bullish opinion has become somewhat bearish because price does matter.
Boeing stock is getting overvalued fundamentally and overbought technically. Given the recent incessant run-up in both the markets generally and Boeing stock in particular, a pullback is likely looming on the horizon. I would look to short BA near current levels with an initial downside target around the old highs at the $390 area.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his strategies can go to https://marketfy.com/item/options-and-volatility.