Warnings late last year off and on the price chart of Boeing (NYSE:BA) proved prescient. But following a hard landing in shares and earnings to come, is BA stock worth a second look for today’s more-bearish investors?
For Boeing shareholders who took Bank of America’s “nuclear option” free cash-flow warning seriously this past December, heeding caution has rarely looked so good when it comes to the aircraft manufacturer.
Similarly, investors who ejected safely as Boeing put together the final touches on an ominous-looking pattern top at the tail end of 2019 are happy to have listened to that timely warning.
Bottom-line, BA stock is down roughly 75% since the start of January. The aforementioned fire starters, doused in the ‘bad culture’ surrounding Boeing’s grounded 737 Max jet and sparked to ignition by 2020’s novel coronavirus grounding the majority of commercial flights, helped create the firestorm leading to the blue-chip’s fallout.
And conditions don’t appear to be getting any better for Boeing either.
BA Stock’s Current Standing
Boeing is now being challenged in its decision to pull the plug on the $4.2 billion purchase of Brazilian company Embraer’s (NYSE:ERJ) commercial aviation business. The company has accused Boeing of wrongfully terminating the agreement and ‘manufacturing false claims’ to void the deal. Embraer plans to “pursue all remedies” against Boeing.
Who are investors going to believe? The answer is much less clear these days. But the real driver in shares this week will likely be earnings.
The Dow constituent is set to announce first quarter earnings results ahead of Wednesday’s opening bell. Unsurprisingly, the report is forecast to show substantial losses.
Specifically, Boeing stock is expected to show a red inked loss of $2.08 per share, compared to the year ago period’s profit of $3.16. At the same time, sales estimates of $17.17 billion represent a slide of 25% from 2019’s Q1.
But could the worst be over for Boeing? Or conceivably, could worse-than-expected results produce a ‘buy-the-new’ reaction?
Anything is possible of course. But customers like Delta (NYSE:DAL), which delivered its own awful earnings this past week, suggest otherwise.
Of course, already dealing with cash flow problems, Boeing has had to suspend its dividend, as well as apply the brakes on share repurchases. All told, business conditions don’t look good. Likewise and once again, investors may also want to take a look at the BA stock price chart for clues.
BA Stock Weekly Price Chart
Source: Charts by TradingView
Are Boeing shares better positioned for bulls, bears or for standby? Back in late December I warned investors that the technical prospects for BA stock looked grim. The stock was nearly finished forming an ominous complex/irregular “head-and-shoulders” topping pattern, which has been shaping up over the past two years. The analysis proved spot-on ahead of a powerful breakdown in shares.
Now, and with 2020’s large decline under Boeing’s belt, is it time to be more optimistic in front of earnings this week?
Our position is that the damage done, despite how bad it’s been, is still unfinished business. Boeing is now in the fifth week of consolidating its massive and fast draw-down in share price. And the technical respite could spell bad news in the form of another large leg lower.
Boeing’s price contraction is shaped in the spirit of a symmetrical triangle. The modest trading edge for stock direction out of this pattern is historically as a continuation move. That would mean shares should drop in price. And with stochastics flattening in neutral territory, in fact on the cusp of bearishly crossing over, the possibility for new lows appears to be growing.
Also of concern, the weekly formation has developed around BA’s 76% retracement and trend-line dating back to the financial crisis low of $22.01 from March 2009. A convincing breakdown hints at aggressively lower prices and new relative lows. I wouldn’t suggest a full revisiting of 2009’s bottom in Boeing. But near $128, there’s definite room for a much larger decline.
For those agreeable and comfortable with earnings volatility, I’d suggest an intermediate-dated, out-of-the-money bear put spread for positioning. Unlike with open-ended stock risk associated with shorting shares, vertical spreads like these offer nice leveraged returns, reduce risk and guarantee exposure won’t exceed the cost of the debit.
Disclosure: 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.
