Boeing (BA - Get Report) began the second half of 2019 below its 200-day simple moving average at $364.77. A close this week below its five-week modified moving average at $360.87 will be a technical downgrade. My call is to sell Boeing on strength to its semiannual and monthly risky levels at $374.35 and $383.71, respectively.
Boeing faces quality control issues as I have been warning for months now. On Monday, July 1, we learned that Boeing outsourced the software for the 737 Max 8 fixes to India where engineers are paid just $9 an hour. In addition, the U.S. Department of Justice subpoenaed Boeing for quality control issues at their South Carolina production facility for the 787 Dreamliner. I wrote about the Dreamliner production issues back on April 23.
When I was an engineer for Grumman in 1966 through 1970, I focused on standards and procedures. Back then we focused on over-engineering (building better than needed) products for safety. Just remember Apollo 13 and the long-lasting F-14 Tom Cat. Boeing lacks this pride and faces fines, lawsuits and probably cancelled orders.
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. Boeing beat analysts' earnings-per-share estimates on Jan. 30, which indicated that the first crash was priced into the stock performance. This changed quickly with a price gap lower on March 11 that was caused by the Ethiopian crash.
Note that a "death cross" formed on June 13 when the 50-day simple moving average fell below its 200-day simple moving average, indicating that lower prices lie ahead. These moving averages are at $360.00 and $364.77, respectively.
The close of $322.50 on Dec. 31 was an important input into my proprietary analytics and the annual value level remains at $302.60. The June 28 close at $364.01 was an important input into my analytics and shown on the chart is this week's value level at $336.19 and semiannual and monthly risky levels at $374.35 and $383.71, respectively.
The Weekly Chart for Boeing
Courtesy of Refinitiv XENITH
The weekly chart for Boeing ended last week positive but will be downgraded to neutral if the stock ends this week below its five-week modified moving average at $360.87. The stock remains well above its 200-week simple moving average or "reversion to the mean" at $243.02. The 12x3x3 weekly slow stochastic reading is projected to rise to 41.55 this week up from 33.61 on June 28. Back at the March 1 high, this reading was above 90.00 at 92.14, which made the stock an "inflating parabolic bubble," and it popped as expected.
Trading Strategy: Buy weakness to the weekly and annual value levels at $336.19 and $302.60, respectively, and reduce holdings on strength to its semiannual and monthly risky levels at $374.35 and $383.71, respectively.
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How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week; the monthly level changes at the end of each month. The quarterly semiannual levels were changed at the end of June. 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."