Schaeffer's Trading Floor Blog

Weekly Contrarian: Is This Just the Beginning of Boeing's Troubles?

BA could be poised for a contrarian backlash in the near term

by 1/17/2013 11:49 AM
Stocks quoted in this article:

Bloomberg Businessweek recently featured an article entitled, "Boeing's 787: Should You Board This Plane?", which highlights the fundamental struggles currently facing The Boeing Company (NYSE:BA - 73.55). The aerospace issue's fleet of new 787s has been grounded by the U.S. Federal Aviation Administration (FAA), among other groups, after a recent string of technical troubles. While the author details the unlikelihood of passengers getting fatally wounded in an actual crash, the bad press surrounding the company will potentially create some short-term headwinds for BA. The writer concludes that the negative media attention is likely to stick around, explaining, "for reporters, where there is smoke Questions naturally arise about anything new, and the 787 is full of new stuff: carbon-fiber composites to make it lighter and more fuel-efficient, the batteries, and the advanced electrical systems they power." The longer these questions go unanswered, the worse things could get for BA.


On the charts, BA has been stuck in a pretty tight trading range since December 2011, with the stock churning between $70 and $78. However, the equity has been steadily losing ground in 2013, with the shares off nearly 6% since hitting a new annual high of $78.02 on Jan. 4.

On the sentiment front, options players have been buying to open more calls than puts in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have purchased 157 calls for every 100 puts throughout the past 50 sessions. This trend has translated into a gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 0.80, which shows near-the-money call open interest outweighs put open interest among the front three-months' series of options. Going forward, this heavy accumulation of calls could apply resistance to the stock as the contracts begin to unwind over the next few months.

Outside of the options pits, short sellers reduced their bearish exposure by more than 18% during the latest reporting period, and short interest now accounts for a low 1.1% of the stock's float. Not only was BA unable to capitalize on this recent influx of buying power, but it would take less than two days to cover the remaining shorted shares, at the equity's average daily trading volume. Simply put, there is not an ample amount of sideline cash available to fuel any short-term rebounds.

BA's price action could also be affected by a round of downgrades and/or price-target cuts down the road, should the company continue to be plagued by fundamental woes. The stock currently sports 17 "buy" or better endorsements, compared to just three "holds" and one "strong sell." Plus, the consensus 12-month price-target of $88.58 represents a 20% premium to the security's current perch. A re-evaluation of ratings among this sanguine group could apply further selling pressure to the stock in the near term.

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