After a hard technical crash, some investors may view Boeing (NYSE:BA) stock as a bullish one-off opportunity. Be warned though — with history as a precedent, the latest evidence facing Boeing stock off and on the price chart is setting up as safer passage for bears. Let me explain.
Is it my imagination or is Boeing’s problem sounding like a more serious version of the Chipotle (NYSE:CMG) health scare, which crippled shares and its image for a couple of years? Maybe. Nevertheless, as anyone with access to a newspaper, television or the internet knows, BA has been in hot water following a second fatal crash by the company’s 737 MAX earlier this month.
Of course Chipotle eventually washed its hands of the problems and bad press. In their case, nobody died though. And still the steps required to move forward did take longer than most would have guessed — and in the interim, shares got ambushed to multiyear lows. But there’s more to the Boeing story as well.
Boeing’s actual software fix is apparently painlessly quick to implement. That’s the good news. The more pressing problem are many key countries outside the U.S. have signaled they won’t rubber stamp any approval by U.S. authorities. Instead, regulators from China, Europe and Canada plan to conduct their own investigations and keeping the costly 737 MAX grounded for months.
And now there’s another incident impacting Boeing stock.
Late Tuesday after the market close, it was learned a non-passenger 737 Max required an emergency landing at Orlando airport in Florida. The good news is nobody was hurt. Tuesday’s forced pit stop was also caused by an engine problem unrelated to the anti-stall software bug suspected in both fatal crashes. “Phew!” Right?
Personally, I’m not a believer that all press is good press, particularly under Boeing’s current circumstances. How do you spell relief? It’s not spelled Orlando in my opinion. Furthermore, on the BA stock chart there’s other evidence supporting the thesis that a larger correction may be just underway.
Boeing Stock Daily Chart
I’ve stated in the past that charts are never just bullish or bearish. But knowing the historical, drawn-out precedent for the sort of situation facing Boeing, I believe the mixed technical evidence outweighs the positive, and BA shares are headed lower.
For Boeing stock bulls, shares have filled a gap and are testing a 50% retracement level for support. Coupled with an oversold stochastics set-up, the technical combination is certainly the kind associated with bottoming. I get it. But it’s also nearsighted without considering other bearish factors beyond easy-to-see testing and nearby chart supports such as the 200-day simple moving average and 62% level which lead to even greater confidence.
Bottom line, Boeing has only corrected about 19% from its all-time-highs. It may sound like enough damage has been done. But even in healthy markets, corrections often see price declines of 30% while still being considered normal wear and tear on the price chart.
Investors should also be mindful that this modest correction in BA shares follows a massive bull run of nearly 370% over three years. This outperformance opens up the door for Boeing stock to move aggressively lower.
Lastly, the bullish 3-year cycle’s 38% retracement level is near $315 and late December’s market-inspired nausea came in around $290. With the price just over $370, this warning is even more difficult to ignore and shorting BA stock all the more approachable.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.