Boeing Co. (BA - Get Report) does not belong in your investment portfolio as negative news on the 737 MAX 8 is starting to harm the technical charts. Since the Ethiopia crash, shares of Boeing gapped lower on March 11 and traded as low as $361.53 on March 22. My call is that weakness will take the stock into the zone of semiannual and annual value levels at $323.80 and $302.60. This would be well below the all-time intraday high of $446.01 set on March 1.
This morning Boeing gapped below its monthly value level for April at $383.08 on several items in the news since Friday.
On Friday, Boeing CEO Dennis Muilenburg admitted that bad data that fed into the automated flight system for the MAX 8 contributed to both the Lion Air and Ethiopia crashes that killed 346 people. The conclusion released by Ethiopian aviation officials indicated that their crash was not caused by pilot error. I have been worried that faulty Artificial Intelligence was a factor in these two crashes, and this was likely a major factor. I guess that the touted quick AI fix to faulty AI was not a solution and the question remains, can this aircraft be trusted again.
Boeing will cut production on the 737 MAX 8 by 20% starting mid-month to 42 units per month. More than 300 of the MAX 8 planes are now grounded and this should last at least into June. The South China Morning Post reported that China as delayed its order for 100 MAX 8 aircraft. Boeing also admits to a second software problem unrelated to the anti-stall Maneuvering Characteristics Augmentation System, MCAS.
Wall Street has chimed in this morning as Bank of America Merrill Lynch downgraded Boeing to neutral from buy. They project that the MAX jet will be delayed for six to nine months. This is having an impact on airlines as well. Southwest Air (LUV - Get Report) extended their MAX pull-out until June and the stock faced a Wall Street downgrade.
If these are not enough reasons to avoid Boeing shares, look at the daily and weekly charts.
The Daily Chart for Boeing
Courtesy of Refinitiv XENITH
The daily chart for Boeing shows the price gap lower on March 11 that was caused by the Ethiopian crash. From the March 1 high of $446.01 to the March 22 low of $361.53, the stock slumped by 18.9%. The close of $322.50 on Dec. 31 was the year end input to my proprietary analytics and resulted in its semiannual and annual value levels at $323.80 and $302.60, respectively, which is my downside price target range.
The March 29 close at $381.42 was the month end input to my analytics and resulted in a monthly pivot at $383.08 and a quarterly risky level at $460.36. This week's risky level is $397.67. Note that Friday's high was a failed test of the 50-day simple moving average at $398.31 and the 200-day simple moving average is a support at $360.24.
The Weekly Chart for Boeing
Courtesy of Refinitiv XENITH
The weekly chart for Boeing will be downgraded to negative this week given a close on Friday below its five-week modified moving average at $386.20. The stock is well above its 200-week simple moving average or "reversion to the mean" at $229.75 last tested during the week of Feb. 26, 2016, when the average was $115.75. The 12x3x3 weekly slow stochastic reading is projected to decline to 52.99 this week down from 60.03 on April 5. If you bought this stock in early-2016, you still have a huge gain to lock-in.
Trading Strategy: Buy weakness to the semiannual and annual value levels at $323.80 and $302.60, respectively, and reduce holdings on strength to the monthly and weekly risky levels at $383.08 and $397.67, respectively.
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 semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March. 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.