Is It Time to Reload Boeing (BA) Short Sales?

Dow component The Boeing Company (BA) rallied to a nine-month high on Thursday after Ryananir Holdings plc (RYAAY) ordered 75 737-MAX jetliners, just two weeks after the Federal Aviation Administration (FAA) lifted its 20-month flight ban. Boeing stock has now gained an impressive 170% since March but is still down more than 20% year to date, highlighting extreme volatility. Investors apparently haven't noticed or cared because accumulation readings have now lifted above the levels posted just before the 2019 crash.

Key Takeaways

  • Boeing faces major headwinds unrelated to the 737-MAX jetliner.
  • The stock is posting a negative 2020 return, despite a high-percentage rally off the March low.
  • Heavy resistance at and above $250 is likely to slow or stall upside progress.
  • The current advance has the potential to generate profitable short sales.

The flight certification lifts a dark cloud off the aerospace giant, but worldwide air travel may not return to pre-crisis levels until the middle of the decade, at the earliest. And for all the talk about returning passengers, Delta Air Lines, Inc. (DAL) just warned that fourth quarter flights will book just 30% of 2019 revenue. Taken together with the business world's shift into the virtual meeting space, Boeing stock is getting more expensive by the day.

In addition, the uptick is rapidly approaching key price levels broken in the first quarter, making the stock an interesting choice for aggressive short sales. This classic strategy is not recommended for newer traders without proven risk management skills, but a perfect short entry could book high-percentage returns as the calendar flips into 2021 and shareholders realize that the path to profitability will be long and arduous.

Wall Street consensus on Boeing stock is mixed despite the 737-MAX airworthiness certificate, with a "Moderate Buy" rating based upon eight "Buy," nine "Hold," and two "Sell" recommendations. Price targets currently range from a low of $137 to a Street-high $306, while the stock is set to open Friday's session nearly $36 above the median $203 target. It is likely that renewed selling pressure will reach this midpoint, but the highest high of this advance may not come for several weeks.

A short sale is the sale of an asset or stock the seller does not own. It is generally a transaction in which an investor sells borrowed securities in anticipation of a price decline; the seller is then required to return an equal number of shares at some point in the future. In contrast, a seller owns the security or stock in a long position. 

Boeing Daily Chart (2018 – 2020)

Chartr showing the share price performance of The Boeing Company (BA)

The stock more than quadrupled in price between February 2016 and March 2018's all-time high at $446.01. The crash occurred a few days later, generating a persistent decline that bounced within 15 points of the December 2018 low in January 2020. It rallied more than 40 points into February and collapsed, completing a multi-year double top breakdown that establishes major resistance at $300. Selling pressure also broke the 50-month and 200-week exponential moving averages (EMAs) near $250, with a bearish March 9 runaway gap narrowly aligned at that level.

The subsequent bounce stalled below the 200-day EMA in June, yielding a pullback that found support around $150. The stock turned higher ahead of the FAA news and reached resistance just before the Thanksgiving holiday. It broke out this week, establishing support near $200 while lifting to the highest high since March 10. The on-balance volume (OBV) accumulation-distribution indicator has matched bullish price action, lifting close to an all-time high.

The advance is targeting the $250 level, which also marks continuation gap and moving average resistance. Key Fibonacci retracement levels have aligned in this price zone as well, but a one-day turnaround seems highly unlikely. A more realistic scenario will carve a multi-week topping pattern that reaches as high as $275, with a breakdown generating short sale signals that favor a rapid decline toward $200.

A runaway gap occurs when trading activity skips sequential price points, usually driven by intense investor interest. In other words, there was no trading, defined as an exchange of ownership in a security, between the price point where the runaway gap began and where it ended.

The Bottom Line

Boeing broke out to a nine-month high this week, but the uptick is rapidly approaching heavy resistance levels generated by the first quarter decline.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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