Boeing has recently taken off, literally and figuratively. But is now a good time to consider a new position? Let’s look at what’s happening off and on the price chart of Boeing stock, then offer a risk-adjusted determination aligned with those findings.
It’s no secret it’s been a tough couple of years for blue-chip and aircraft manufacturer Boeing. Through no fault of its own shares crashed with the best of them during the market’s notorious pandemic-driven bottom this past March. And for good reason, Boeing’s food chain such as Delta Airlines (NYSE:DAL) or United Airlines (NYSE:UAL) were about to become big-time victims of a global health crisis then-just underway.
To be sure, Boeing was already a risky proposition prior to the novel coronavirus for reasons of its own making. Lives, of course, were lost in a couple of seemingly avoidable aircraft tragedies. And shares had already lost roughly 40% from their all-time-high hit a full year in front of Wall Street’s brief but historic bearish interlude with Covid-19.
Boeing Stock Sees Course Correction
In 2020 the combination of existing and new challenges resulted in BA bleeding out more than $15 billion through September, cutting its deliveries forecast for the next decade and ratcheting back its manufacturing in anticipation of a long and slow slog in front of it. And during the worst of it investors bailed in a big way with shares tumbling more than 70% on the year at its March low. But Boeing has changed course in a big way.
Last month a remedy to Boeing stock holders began in earnest though. The manufacturer finally received long-awaited approval from the Federal Aviation Administration to put its troubled 737 MAX back into the skies after nearly two years and major fixes to its aircraft systems. The news also gave the green light for BA to work through inventory of more than 400 aircraft assembled during the grounding and hopefully bring in some much-needed cash.
November, of course, also brought in good news for “stay-away” Covid stocks across the board. Carnival (NYSE:CCL). American Airlines (NYSE:AAL). No stone was left unturned. Even stocks with riskier financials rallied strongly after multiple vaccine efficacy and drug approval reports and now, the first Pfizer (NYSE:PFE) vaccinations to front-line workers underway.
And Wall Street — being a forgiving kind of place — celebrated by pushing the shares up more than 45% in November.
BA Stock Weekly Price Chart
Source: Charts by TradingView
So, what now? There are market risks of course which could have a negative impact on Boeing. At a minimum, the pandemic will continue to grow worse with record casualties before a vaccinated herd immunity can prevail. As well, that type of outcome is looking several months away. And that’s if all goes smoothly.
Also, the green light to put out the for-sale signage on aircraft doesn’t mean there’s going to be strong demand given the airlines own ongoing challenges. The days of peanuts being served on Southwest Airlines (NYSE:LUV) are already long gone due to allergies. But if that wasn’t the case, even those tiny treats might be casualties at this point. So forget about aggressive and costly purchases such as new aircraft.
Now for the good news. Some investors may worry that the next chapter in Boeing’s recovery will need a good amount of time to sort itself out and shares will likely languish after November’s performance. I’m much less convinced. As mentioned, Wall Street can be a forgiving place. It’s also a very forward-looking mechanism when it wants to be.
Consolidation Forming
Right now and technically, Boeing stock looks to be positioning itself for an extension of its rally that should see shares climb strongly in early 2021. Currently, shares have formed a consolidation of nearly two weeks with price action centered on its 10-year low-to-high cycle. A move through the pattern’s high should serve as a breakout capable of rallying shares into a testing position of Fibonacci and trendline resistance from roughly $263 – $304.
To take advantage of that kind of stock reaction in BA shares, the February $250/$275 Bull Call Spread is one favored spread given its superior protection in the event of a surprise grounding and optimistically, the position’s well-aligned upside potential with sufficient time on the calendar to capitalize.
On the date of publication, Chris Tyler does not hold, directly or indirectly, any positions in securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
