Trade Recommendation: Boeing

Technical Overview

  • Boeing’s stock has enjoyed an over 100% appreciation since May 2017, rising from under $180 to over $370 in February 2018. During this time, a key support carried prices higher (green trendline in Figure 1). Note how the support held on a closing basis on all but one case since the mid-March correction ensued.
  • On March 13, 2018, the stock completed a H&S pattern with a downside target of $305 (tops – red circles, neckline – red trendline, target – yellow vertical line).This target has not been met yet.
  • During last week’s broad market ascent, the stock was an underperformer – moving sideways and finding resistance in the $336 – $340 area.

Figure 1. BA Daily Chart

Implications

  • While the stock has been able to hold its key support, the lack of follow-through price action to the upside is indicative of weakness. A confirmation, however, is still required before shorting the stock.
  • Given the stock’s swift move down after breaching the neckline, it is expected that the downside target will be met when the green trendline is broken (i.e. on the next leg down).

Outlook

  • Neutral while the stock is above the green trendline and below $340.
  • Bearish once the green trendline is broken.

Trading Recommendation

  • Short the stock upon a close below the green trendline (currently at $328).
  • Target: $300 – the origin of January’s near-vertical ascent, as it is often the case that such spikes are retraced 100% (orange horizontal trendline). Also, this level is just below the H&S target.
  • Stop: A close above $342 – the high of the doji candle on March 21 (violet arrow).

Benefit of Recommended Trade

  • Favourable risk-reward (1:2). Moreover, as time goes by, the risk-reward profile of the recommended trade will be improving as the upward-sloping, green trendline is rising by roughly 60 cents/day. More specifically, by next Tuesday (April 24), the green trendline will be at $332, translating to the risk-reward of the trade nearing 1:3, assuming a $331 entry, a $300 target, and a $342 stop level.

Featured image courtesy of Shutterstock.

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http://www.linkedin.com/in/konstantindimov

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