Buyers are flocking back into Dow component The Boeing Company (BA) in anticipation of a year-end relaunch of the troubled 737 MAX airliner. Of course, there could be further delays, but that hasn't stopped newly minted bulls, even though the stock fell to an eight-month low just two weeks ago. This inbound rotation makes sense, given classic Wall Street lore that views the stock market as a future discounting mechanism.
However, it's wise to expect progress to stall in the coming weeks as the uptick gets closer to the March sell gap through $400. A healthy supply of shareholders got trapped in the initial decline, which followed the weekend crash of an Ethiopian airliner. Many others got stuck when they bought the first bounce, expecting Boeing to find a quick fix. Members from both of these groups will be looking to get out as the recovery wave progresses.
Boeing CEO Dennis Muilenburg made a bad situation worse with a phone call to President Trump after the crash, asking him to keep the plane flying, and then refused to accept blame after the grounding. The company finally got the message and took responsibility but has been forced to backtrack on several relaunch dates, further undermining investor sentiment while exposing an overly cozy relationship with the Federal Aviation Administration.
Even so, the world's most profitable aircraft manufacturer will get the MAX back in the air, sooner or later, and do what's needed to rebuild confidence. The stock is now trading about 90 points below the all-time high at $446, posted on March 1, and few analysts doubt that it will eventually challenge that level. As a result, the potential reward for owning the stock has improved greatly, whether or not the MAX flies in the fourth quarter.
BA Weekly Chart (2013 – 2019)
A strong uptrend ran out of gas in the fourth quarter of 2013, giving way to choppy range-bound action that broke to the downside in 2016. The decline settled at a four-year low near $100, marking a historic buying opportunity, ahead of a recovery wave that reached the 2015 high after the presidential election. An immediate breakout attracted intense buying interest, more than doubling the stock's value into March 2018.
The decline into year end found support under $300, yielding a strong 2019 rally that hit an all-time high less than two weeks before the Ethiopian crash. Selling pressure into August looks contained in this weekly view, settling above the prior low, while the uptick into September has remounted the broken 50-week exponential moving average (EMA). Meanwhile, the weekly stochastics oscillator is engaged in a buy cycle that still hasn't reached the overbought level, predicting even higher prices.
BA Daily Chart (2016 – 2019)
A Fibonacci grid stretched across the December into March uptrend places the August low at the .786 retracement level, which marks a high-odds reversal zone. The June and July bounces stalled near $380, indicating that the current rally could reach that resistance level before coming to an end. The narrowly aligned 50- and 200-day EMAs have now settled near the .618 retracement at $355, indicating that this price will be the balance point in coming weeks.
The on-balance volume (OBV) accumulation-distribution indicator posted an all-time high in February 2018 and a lower high at the March 2019 price peak, setting off a bearish divergence that foretold the rally failure. OBV undercut the March low in August and turned higher, lifting back above the low and setting off a minor buying signal. It still hasn't reached second the quarter highs and probably won't exceed those peaks until Boeing establishes a MAX relaunch schedule.
The Bottom Line
Boeing may have bottomed out in August, setting the stage for a recovery wave that eventually tests the 2019 high near $450.
Disclosure: The author holds a defense and aerospace exchange-traded fund that has a 22% weighting in Boeing stock.