Boeing (BA) - Get Report still faces troubling news on the 737 Max 8, but it's also negotiating a huge Dreamliner order with China. Given this mixed picture, my call is to buy the stock on weakness to its semiannual and annual value levels at $323.80 and $302.60, respectively.
Any new airline orders will likely be on hold until the China tariff standoff is resolved and until the 737 Max 8 is back in the air. This should keep the upper end of the trading range intact with its risky level for June at $359.66 and its 200-day simple moving average at $363.67.
Boeing has been below its 200-day SMA since May 7 and traded as low as $330.67 on June 3 so the trading range has been in play for four weeks now.
Boeing is still not cheap enough to rate the stock a buy as its P/E ratio is elevated at 22.16 and its dividend yield is not generous at 2.39%, according to Macrotrends.
While the 737 Max 8 issues are not totally resolved, the company is negotiating with China for a large jetliner order. This order is covered by TheStreet.com and is not for the 737 Max jets. This order is for 100 wide-body twin-aisle 767 Dreamliners and 777X aircraft. This is not a done deal, given the trade war and the ongoing issues involving the re-certification of the still-grounded 737 Max aircraft.
While this potential order is a reason to buy the stock on weakness, there are other stories that describe why the stock is not yet out-of-the-woods. A story in The New York Times on June 1 explains that fatal flaws with the Boeing 737 Max occurred during development stages that may have been factors in the two crashes. Given continued revelations about quality control issues for the 737 Max 8, re-certification to return these airlines could be grounded for the remainder of the year. Remember that the 737 MAX represents about a third of Boeing's revenue over the next three years.
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 crash 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.
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 May 31 close at $341.61 was an input to my analytics and the monthly risky level in June is at $359.66. 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 at $363.67 and the stock has been below this milestone since 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 $360.29. The stock remains well above its 200-week simple moving average or "reversion to the mean" at $238.47. The 12x3x3 weekly slow stochastic reading is projected to decline to 17.00 below the oversold threshold of 20.00. 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 semiannual and annual value levels at $323.80 and $302.60, respectively, and reduce holdings on strength to its monthly risky level at $359.66 and its 200-day simple moving average at $363.67.
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 changed at the end of January, February, March, April and May. 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.
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."
The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.