Boeing's (BA) - Get Boeing Company Report third-quarter results, reported before the opening bell this morning, missed earnings-per-share estimates. The stock dipped to $330.86 premarket, then recovered to open at $345, up from Tuesday's close of $337.
My call is to reduce holdings on strength to between monthly and semiannual pivots at $363.47 and $374.35, respectively. Given all the uncertainties explained below, do not buy the stock unless it declines to its annual value level at $302.60.
Be aware that the stock traded as low as $292.47 on Dec. 26, between the two 737 MAX crashes. In my opinion, the company is too optimistic about the possible fourth-quarter return to the skies of the 737 MAX aircraft.
Most on Wall Street have been patient with the Chicago aerospace company but are ignoring the issues that came to light on Monday concerning the 737 MAX going back to early 2016. A host of legal, political and regulatory concerns should limit the stock's upside.
I am an engineer by education who spent the first five years of my career in the aerospace industry at Grumman on Long Island. I was involved with standards and procedures on the manufacturing floor, where aircraft for the Navy were built. Back in 1966 through 1970, it was all about quality control.
Now we know that Boeing has been negligent on airline production, not only for the MAX 8 but also for the 787 Dreamliner built in Charleston, S.C. Quality control is the key, but Boeing seems to have forced workers to increase production, ignoring concerns by the engineers and workers on the production lines.
Today Boeing faces many issues that investors should be aware of:
- The Boeing 737 MAX 8 is extremely important as it accounted for 60% of the company's revenue last year.
- The backlog for the 737 MAX is 4,000 orders, but will some be canceled? The problems may be too complex to fix with assured safety.
- The Charleston plant that makes the 787 Dreamliner has had employee complaints that manufacturing standards are unsafe. Boeing has reduced production for this model due to the trade war with China.
- Future flights of the 737 MAX continue to be pushed further out on the calendar. Boeing implies that one regulator will certify the aircraft this quarter, but overseas regulators will likely delay certification into early 2020.
- Boeing will face criminal investigations and many lawsuits from victims' families. I bet Congress will take testimony before the plane takes off again.
- A problem with the 737 MAX is solidifying the interface between human pilots and the AI interface on takeoff issues.
- Loss of trust in email messages goes back to early 2016. The company ignored concern about the safety of the flight-control system in the 737 MAX 8.
The Daily Chart for Boeing
Courtesy of Refinitiv XENITH
The daily chart for Boeing shows that the stock set its all-time intraday high of $446.01 on March 1, months after the Lion Air Boeing 737 MAX 8 crashed in October 2018. This changed quickly with a price gap lower on March 11 following the Ethiopian crash.
The stock closed 2018 at $322.50 which was an important input to my proprietary analytics. Its annual value level at $302.60 remains in play until the end of 2019.
The close of $364.01 on June 28 was an important input into my analytics. Its semiannual pivot at $374.35 has been a magnet since July 19 and was crossed to the downside on Oct. 17.
The close of $380.47 on Sep. 30 was the latest input to my analytics and the fourth-quarter risky level at $447.81 seems unachievable. The monthly pivot for October held on Oct. 1 then failed to hold on Oct. 18.
The Weekly Chart for Boeing
Courtesy of Refinitiv XENITH
The weekly chart for Boeing is negative, with the stock below its five-week modified moving average at $361.91. The stock remains well above its 200-week simple moving average or "reversion to the mean" at $260.48.
The 12x3x3 weekly slow stochastic reading is projected to decline to 66.13 this week down from 73.73 on Oct. 18. Back at the March 1 high this reading was above 90.00 at 92.14 which made the stock an "inflating parabolic bubble" which popped as expected.
Trading Strategy: Buy weakness to the annual value level at $302.60 and reduce holdings on strength to its monthly and semiannual pivots at $363.47 and $374.35, respectively.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the past nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play.
The close at the end of June 2019 established new monthly, quarterly and semiannual levels. The semiannual level for the second half of 2019 remains in play.
The quarterly level changes after the end of each quarter so the close on Sept. 30 established the level for the fourth quarter. The close on Sept. 30 also established the monthly level for October as monthly levels change at the end of each month.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.
To capture share-price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."
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Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.