Dow component Boeing Co. (BA) has reached upside targets and major resistance after a powerful trend advance that’s posted nearly 50% gains in the last eight months. Current owners may wish to pull up stakes because the stock could drop precipitously in coming months and wipe out carefully accumulated profits. The decline should also allow sidelined market players to buy the dip as much as 50-points below current levels.
Market wisdom tells us that when you sell has a greater impact on long-term profitability than when you buy. Buy and hold investors often ignore this classic advice, believing Wall Street’s self-serving mantra of holding good companies for years or decades. However, history has repeatedly shown that bear markets inevitably replace bull markets, with long-term shareholders often panicking and dumping positions at the worst possible prices.
BA Long-Term Chart (1993–2017)
The stock topped out at $31 in 1990 and entered a multi-year downtrend that found support in the mid-teens in 1993. It turned higher into the middle of the decade, breaking out in a strong uptrend that continued into 1997 when Asian Contagion selling pressure triggered a major top just above $60. A decline to $40 got bought, ahead of a 2001 test at resistance that attracted aggressive selling pressure.
It failed to turn higher at the end of the bear market in October 2002, dropping to a 7-year low in the second quarter of 2003. That marked the lowest low in the last 14 years, ahead of a fresh advance that mounted 1997 and 2001 resistance in 2006. The breakout triggered additional upside into the 2007 bull market top at $108 and gave way to a decline that picked up steam during the 2008 economic collapse.
Selling pressure continued into March 2009, holding 5-points above the 2003 low, ahead of a bounce that stalled in the upper-70s in 2010. It lagged badly in the next three years, finally breaking out in 2013 and heading into a rally that lost momentum above $140. It tested that level twice into 2016 and gave out to a 2-year low near $100 in the first quarter of 2016. The stock then took off in a dramatic recovery, reaching the prior high after the November election, and heading into a vertical 2017 advance that may have topped out near $190.
Price action since 2013 has carved a broadening formation a.k.a. megaphone pattern that reached resistance in March 2017 while a recent test at that level ran into a buzzsaw of sellers, generating a reversal that could signal a double top. Also, the 8-year uptrend shows the outline of an Elliott 5-wave pattern, with a classic blow off in the third and final buying wave. These technical factors could signal a trend change that drops the stock below $150 in coming months.
BA Short-Term Chart (2015–2017)
The 2016 uptick broke the red trendline of lower highs off the February 2015 peak in October and took off in the most vertical advance since 2013. Unfortunately for current shareholders, it hasn’t posted a single pullback or consolidation pattern since that time while setting off extremely overbought technical signals. This marks a perfect setup for a long overdue correction that tests the confluence of trendline, range and Fibonacci support near $140.
Admittedly, the stock has held up well in recent weeks and still hasn’t set off shorter-term sell signal. On Balance Volume (OBV) tracks this bullish theme, with committed institutional and retail buyers keeping the indicator near a 2017 high. This resilience should allow shareholders thinking about taking profits to shift into active surveillance mode, watching key levels for signs of growing weakness, and cashing out when those alarms go off.
The Bottom Line
Boeing has lifted into the third slot in Dow Industrial relative strength, but the vertical advance since September 2006 looks overdone and in need of a long consolidation or decline to work off technically overbought readings. At the same time, a long-term cycle raises the odds that the stock is near or has reached a bull market top, telling long-term shareholders to consider a timely exit.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>