Boeing (BA) - Get The Boeing Company Report is trading below its 200-day simple moving average at $363.60. This trend should continue and my price targets are semiannual and annual value levels at $323.80 and $302.60, respectively. So far, share price weakness still has the stock overvalued with a P/E ratio of 24.21, according to Macrotrends. The S&P 500's P/E is 17.8.
Before the open on Tuesday, Barclays downgraded Boeing to equal weight from overweight. The analysts said that passengers will avoid flying the 737 MAX jets even after the aircraft is certified to fly again. Barclays lowered its price target to $367 from $417.
On Monday, Boeing management disclosed that it was unaware that engineers were investigating what I will call design flaws. Back in 2017 engineers discovered that the 737 MAX display software for the disabled alert didn't meet requirements for the alert. This disclosure occurred after Southwest Airlines (LUV) - Get Southwest Airlines Company Report complained that it was unaware about issues with the disabled alert until after the October 2018 crash of the Lion Air 737 MAX 8 in Indonesia.
Management credibility has become an important issue for Boeing. Chairman, President and CEO Dennis Muilenburg gave confusing answers to questions at a recent shareholder meeting. He repeatedly discussed safety as the major goal of the company. He blamed pilot-error for the deadly crashes of the 737 MAX 8 airlines.
The news since then could be a problem for the CEO as potential fines and lawsuits are bound to occur in the weeks and months ahead. Remember that the 737 MAX represents about a third of Boeing's revenue over the next three years. As more credibility issues come to light, remember that my opinion remains that shares of Boeing should be sold as a "source of funds."
The Daily Chart for Boeing
Courtesy of Refinitiv XENITH
The daily chart for Boeing shows that the stock was forgiven following the Lion Air Boeing 737 MAX 8 crash that occurred in October 2018. Boeing beat analysts' earnings-per-share estimates on Jan. 30, which led the stock to its all-time intraday high of $446.01 on March 1. The price gap lower on March 11 was caused by the Ethiopian crash.
The close of $322.50 on Dec. 31 was an important input into my proprietary analytics and semiannual and annual value levels remain at $323.80 and $302.60, respectively, which remain my downside price targets. The April 30 close at $277.69 was an input to my analytics and a monthly risky level at $403.52. A weekly value level is $334.78. Note that the post-Ethiopia crash high was $398.66 on April 5 which was a failed test of the 50-day simple moving average at $398.31. Note that the 200-day simple moving average is $363.61 and the stock is slipping below that milestone on Tuesday, May 7.
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 $378.93. The stock remains well above its 200-week simple moving average or "reversion to the mean" at $234.41. The 12x3x3 weekly slow stochastic reading is projected to decline to 27.18 this week down from 33.72 on May 3.
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 50-day simple moving average at $386.87.
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, March and April. 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.
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The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.