Shares of aircraft maker Boeing Co. (BA) have fallen over 2% Wednesday afternoon on the back of earnings results in which the aerospace giant cut its defense-related operating margins, and full-year earnings guidance failed to meet the Street's forecasts. Boeing, despite its recent turbulence, has been the best-performing stock in the Dow Jones Industrial Average (DJIA) index over the past 12 months, up roughly 70% through Tuesday. In an interview with CNBC's "Trading Nation," one bear warns that the stock is near the most overbought that it has ever been, forecasting shares to sink as much as 50%. (See also: 2 Dow Stocks for a Volatile Market.)
Mark Newton, the president of Newton Advisors, took to Boeing's technical chart, indicating that each time Boeing shares have been this overbought, measured by the relative strength index (RSI), the trend has gone sideways or south. In the five of the prior six times that Boeing's monthly RSI has reached 75 or above since the 1980s, Boeing has lost 50% of its value in the following two to three years, said Newton.
Boeing's Sideways History
Similar scenarios occurred in 1986, 1990, 1996, 2000 and 2006. In 2013, when Boeing approached the same overbought conditions, the stock traded sideways for four years, said Newton. With the RSI gauge above 75, he recommends avoiding the stock.
$BA Boeing's 6 mth chart very much NEUTRAL-If anything, these Aero/Def stocks have weathered the Tariffs thus far-Most suffered minor declines in mid-to-late June before snapping back- Making tops and bottoms right inline with the broader market which largely WASN"T news-related pic.twitter.com/XSHThnm4fm
— Mark Newton (@MarkNewtonCMT) July 24, 2018
“It’s tough to get too enthralled, given that there’s a neutral sideways trend over the last six months, part of a very, very overbought trend. For most longer-term investors, it’s fine unless you get under $311. That’s really the key line in the sand. If it gets under that, then it’s likely that it’s going to start a more precipitous decline," the investor told CNBC, adding that trade uncertainty puts the industrial company in an even more unappealing position.