A Case to Pump the Brakes on Boeing Stock

Boeing stock is showing a low SVS reading, too

Managing Editor
Aug 12, 2022 at 10:46 AM
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Boeing Co (NYSE:BA) just wrapped up its fourth-straight weekly win, its longest weekly winning streak since October. The big catalyst for this week’s win was the U.S. Federal Aviation Administration (FAA) approving a rework plan to resume 787 deliveries. The aerospace giant’s earnings report in late July saw second-quarter earnings and revenue whiff on expectations, but the stock finished the day 1.9% higher thanks to a dramatic improvement in cash flow.

On Boeings conference call, executives trimmed estimates for 737 MAX deliveries in 2022 and warned that supply-chain constraints have limited the ability to ramp up jet production despite "significant" demand. Despite these sizable headwinds, BA has continued climbing, filling a post-earnings bear gap from late April. After the FAA decision on Monday, BA gapped higher by as much as 7%, and was the most visited ticker page that day on Yahoo! News. An analyst from J.P. Morgan Securities noted "We expect Boeing to emerge from the 737 MAX crisis and begin generating cash in 2022, with the stock being driven by multiple catalysts including the return of the 787, 737 MAX re-certification in China, and increased deliveries.” While these are certainly tailwinds worth recognizing, there are technical areas on BA’s chart that warrant some investor caution.

As Schaeffer’s Senior Market Strategist Chris Prybal identified, Monday’s breakout helped Boeing stock reclaim its $100 billion market cap level. Per the chart below, Boeing’s peak market cap was hit on March 1, 2019, at $250 billion, or 2.5 times its current level. Other areas of note as seen on the chart: $150 billion represents BA’s pandemic highs, while $100 billion was modest resistance dating back from late 2013 to late 2015. These round-number levels come into play as milestones, where share price levels are assigned more psychological meaning than others. That’s not to say they are bullish or bearish trendlines, but instead areas of greater-than-usual importance, where stalling or toppling around these levels could dictate future price action.

 

COTW BA Market Cap

On Thursday, BA promptly ceded that $100 billion market cap level, and at last check it now sits at $98.9 billion. For perspective, that’s good for 25th out of the 30 Dow components, and third among sector peers in the aerospace industry. While the stock oscillates between this key round number, bear in mind BA’s 14-Day Relative Strength Index (RSI), was last seen at an overbought 72.

There is also a historically bearish trendline that Boeing is within one standard deviation from: BA’s 140-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White's latest study, the security has seen five similar signals over the past three years and was lower one month later 80% of the time, averaging a 10% loss for that period. A comparable move from the stock's current perch of $166.38 would place it just below $150.

One final note for prospective options traders; Boeing stock’s incredibly low Schaeffer's Volatility Scorecard (SVS) of just 24 out of 100. This scorecard is used to identify which underlying stock options have historically had underpriced or overpriced options. Low SVS readings indicate consistently realized lower volatility than its options have priced in -- pointing to the possibility of BA being a potential premium-selling candidate rather than a premium-buying candidate.

Subscribers to Chart of the Week received this commentary on Sunday, August 7.

 

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