Dow component The Boeing Company (BA) is trading higher by nearly 7% in Wednesday's pre-market session after the company reported a first quarter 2020 loss of $1.79 per share, much worse than the consensus estimate calling for a loss of $1.39. Revenue matched modest guidance at $16.91 billion, despite the continued grounding of the 737-MAX jetliner and the collapse of air travel around the world due to the coronavirus pandemic.
The aerospace giant now hopes to fly the MAX in August, but it still hasn't fixed software issues that have delayed required airworthiness certificates. Hundreds of cancellations since January have also weighed on Boeing shares, with air carriers worldwide cutting down on purchases to ease pressure on their bottom lines. Even so, the market's upbeat reaction to the first quarter's bad news makes sense following a negative 60% year-to-date return for Boeing shares.
New steps to enhance liquidity were outlined during the earnings presentation, including another reduction in commercial airline production rates, a voluntary lay-off program, and "additional workforce action as necessary." Even so, the company needs to obtain additional loan commitments to shore up a heavily damaged balance sheet after a 13-month flood of natural headwinds and self-inflicted wounds.
Price action spent months trying to bounce in the $320s after a massive decline set into motion in March 2019, following the crash of a second MAX jetliner. The stock held that ground into February 2020, when the bottom dropped out, triggering a vertical slide that ended in mid-March at a seven-year low in the double digits. The stock has now rallied more than 45 points off that level but is still trading well below resistance at the 50- and 200-day exponential moving averages (EMAs).
BA Long-Term Chart (1993 – 2020)
A 1993 uptrend starting in the mid-teens gained ground into the 1997 high at $60.50. A 2000 breakout failed after lifting above $70, yielding an orderly decline that undercut four-year range support in 2002. The downside ended a few months later at an eight-year low, giving way to a strong bounce that posted impressive gains during the mid-decade bull market. The rally finally stalled at $108 in October 2007, while the subsequent pullback accelerated during the 2008 economic collapse.
The stock found support in March 2009 less than five points above the 2003 low, yielding a recovery wave that completed a round trip into the 2007 high in 2013. An immediate breakout failed to attract buying interest, easing into narrow range-bound action that persisted for more than three years before ejecting into a healthy uptrend. That advance posted an all-time high at $446 in March 2019, just days before a second MAX jetliner crashed in Ethiopia.
The subsequent downturn failed a major breakout above the 2018 high at $371 before settling near $320 in August. The stock undercut that support level in January 2020 and bounced one last time, before the pandemic panic took full control and carved a 74% loss in just five weeks. The subsequent uptick reversed at $186 on March 26, carving a resistance level that hasn't been challenged in the past month.
BA Short-Term Outlook
The sell-off ended after completing a 100% retracement into the 2016 low and a .786 retracement of the 2009 to 2019 uptrend. It also violated the 200-month EMA at $160, marking the first time the stock has undercut this critical level since August 2009. Meanwhile, the monthly stochastic oscillator has finally reached the oversold zone after a brutal sell cycle that started from the overbought zone in April 2018. Even so, the indicator hasn't crossed over from this extreme level, which is needed to set off a reliable buy signal.
Given weak technical positioning, sidelined investors should watch price action near the 200-month EMA because the bounce that started in March has already failed one attempt to mount that formidable barrier. Unfortunately, that's expected because the 100% retracement into the 2016 low has completed a bearish "first failure" pattern, confirming that the uptrend that started in 2009 has finally come to an end.
The Bottom Line
Boeing stock is trading higher after a horrific first quarter but still hasn't mounted a single major support level broken during the sell-off. As a result, it's best to avoid new long positions, regardless of holding period.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.