Boeing Missed on Earnings, Downside Risk Remains

The Boeing Company (BA) missed earnings per share estimates when it reported quarterly results before the opening bell on Jan. 29. The stock slipped to as low as $314.88 on Feb. 3 and then rebounded to as high as $349.95 on Feb. 12. This high is between its weekly value level at $333.34 and its annual risky level at $351.32.

The stock set a cycle low of $292.47 on Dec. 26, 2018, in between the two 737 MAX crashes. Recent news keeps delaying the return to the skies for this airplane. We know the issues that surfaced for the MAX go back to early 2016 but were not disclosed until after the crashes. The Boeing 737 MAX 8 is extremely important as it accounted for 60% of the company's revenue in 2018. Boeing still faces a host of legal, political, and regulatory concerns that should limit the upside for the stock.

After graduating from Georgia Tech as an industrial engineer, I worked in the aerospace industry at Grumman on Long Island 1966 through 1970. I was involved with standards and procedures on the manufacturing floor where aircraft for the Navy were being built. Back then, it was all about quality control as we worked to put a man on the moon and win the F-14 Tom Cat contract.

Boeing has been negligent on airline production not only for the Boeing MAX 8 but also for the Boeing 787 Dreamliner built in Charleston, South Carolina. Quality control is the key, but at Boeing, workers seem to have been forced to increase production, ignoring concerns by the engineers and workers on the production lines.

The Charleston South Carolina, plant that makes the 787 Dreamliner has had employee complaints that manufacturing standards are unsafe. Boeing has reduced production for this model due to the trade war with China and now the coronavirus. In January, Boeing did not have a single order for any of its models of aircraft.

The daily chart for Boeing

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

The daily chart for Boeing shows that the stock set its all-time intraday high of $446.01 on March 1, 2019, months after the Lion Air Boeing 737 MAX 8 crashed in October 2018. This changed quickly with a price gap lower on March 11 following the Ethiopian crash.

The stock closed 2019 at $325.75, which was an important input to my proprietary analytics. Its annual risky level for 2020 is $351.32, which was nearly tested on Feb. 12. Its semiannual risky level for the first half of 2020 is $400.24, with its first quarter risky level at $401.80.

The close of $318.27 on Jan. 31 was also an input to my analytics, and Boeing's monthly risky level for February lines up with the annual level at $351.31. This week's value level is $333.34.

The weekly chart for Boeing 

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

The weekly chart for Boeing is positive, with the stock above its five-week modified moving average at $334.18. The stock remains above its 200-week simple moving average, or "reversion to the mean," at $277.72. The 12 x 3 x 3 weekly slow stochastic reading rose to 29.27 last week, up from 23.83 on Feb. 7. Back at the high posted on March 1, 2019, this reading was above 90.00 at 92.14, making the stock an "inflating parabolic bubble," which popped as expected.

Trading strategy: Buy Boeing shares on weakness to the weekly value level at $333.34, and reduce holdings on strength to the monthly and annual risky levels at $351.31 and $351.32. 

How to use my value levels and risky levels: The closing price of the stock on Dec. 31, 2019, was an input to my proprietary analytics. Quarterly, semiannual, and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons. Monthly levels for February were established based upon the Jan. 31 closes. New weekly levels are calculated after the end of each week. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, while annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which typically is followed by gains of 10% to 20% over the next three to five months.

Want to learn how to integrate trading levels into your everyday trading strategy? Check out my new publication, 2-Second Trader.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.

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