Similar to last year, 2019 has been a difficult and bumpy ride for Boeing (NYSE:BA) investors. Worse yet, the news of the company temporarily halting 737 Max production is ushering in an unpleasant start to 2020 for shareholders. Let me explain.
It was a jolly start to the week for the Dow Jones Industrials. The venerable market barometer jumped by 0.34% while continuing its Santa Claus rally to fresh all-time-highs.
And constituents from Apple (NASDAQ:AAPL) to UnitedHealth (NYSE:UNH) enjoyed an even better session. Backing the broad-based rally, Wall Street was inspired by a “phase one” trade deal with China in front of this past weekend’s threatening and now nixed tariff hike.
But Monday’s rally failed to lift the spirits of BA stock investors. Boeing shares slumped over 4% on Monday following reports the aerospace giant was considering a cut or entirely halting production of its troubled 737 Max aircraft due to FAA re-certification being pushed into 2020.
Investors’ worries found confirmation after the market close as the company announced it will suspend production in January.
The open-ended shutdown is bad news for Boeing stock. Suspending production adds another $9.2 billion charge which Boeing will need to absorb. On the positive side, management did state it’s prioritizing the delivery of stored aircraft and employees jobs, as well as BA’s $2.06 quarterly dividend are not at risk. Still, one analyst sees the move as a “nuclear option.”
Speaking on CNBC’s Squawk Box during Monday’s session, Bank of America analyst Ron Epstein said the bull case for BA stock rested in large part on the 737’s free cash flow. A pause in production of even a few weeks would have a “material impact” on the company.
Moreover, his view was Wall Street would take this type of action as a “nuclear option” or an indication “something really must be wrong.”
Boeing Stock Price Weekly Chart
Source: Charts by TradingView
Over the last couple years, the broader market has flown the friendly blue skies. Meanwhile, BA stock has largely been in a taxiing position. Since early 2018, shares of Boeing stock are mostly flat while the Dow Jones is up about 15%. Optimistically, one could reason BA is due for a bullish rotation by reason of its underperformance. But, I’d warn against buying into that idea.
If the price chart is any indication, there could be another type of painful grounding for Boeing stock as we enter 2020. Unlike other scandals, such as Chipotle’s (NYSE:CMG) prolonged health scare which eventually turned into a huge buying opportunity, Boeing is only now finishing what I’d label a complex or irregular head-and-shoulders pattern roughly two years in the making. And as bad as the price action has felt for shareholders, it could be the equivalent of the quiet before the storm.
The bearish formation has found Fibonacci support tied to its 2016 low at the 38% level. That ties in with the pattern’s neckline. If broken, the combined failure promises a more decisive and powerful breakdown to be at hand. But there’s more too.
Boeing stock’s right shoulder has established a smaller and bearish head and shoulders formation. In lieu of this extra layer of bearish confirmation, as well as the stochastics indicator eerily taking on the same ominous shape, I’d say “Houston, we have a problem” with Boeing entering 2020.
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.