Dow component The Boeing Company (BA) has been crushed like a bug this week, dropping nearly 108 points in a vertical trajectory that few blue-chip stocks have endured since the dark days of the 2008 economic collapse. The catastrophic downside follows an 85-point plunge into early March, combining for a staggering 56% monthly loss that has left long-term shareholders shell-shocked and looking for relief.
The grounding of thousands of jetliners around the world has forced commercial carriers to rethink their 2020 budgets. That process began in February when the company received 46 cancellations, including many 737 MAX planes originally scheduled for 2019 delivery. Those numbers could skyrocket in March, triggering a liquidity crisis because the $13.7 billion loan taken to cover the MAX grounding is now being tapped at a rapid pace. As a result, Boeing has issued an immediate hiring freeze, and employees have been told to limit overtime.
Boeing could suffer additional fallout after the coronavirus outbreak runs its course because world economies are now contracting at a rapid pace and demand for new planes may not rebound for two or three years. The stock is now pricing in this worst-case scenario, giving up more than three years of healthy gains in just one year. Fortunately for remaining shareholders, the transition may be nearly complete because the vertical decline reached measured move targets on Thursday.
BA Long-Term Chart (1987 – 2020)
The stock rallied strongly in the 1980s and first half of the 1990s, topping out at $60.50 in 1997. A 2000 breakout failed after the Sept. 11 attacks in 2011, reinforcing a trading range with support in the upper $20s. It sold off to an eight-year low in the mid-$20s in 2003, marking an excellent buying opportunity, ahead of an uptrend that booked superior gains during the mid-decade bull market.
The trend advance stalled just above $100 in the summer of 2007, giving way to an orderly decline that sliced through the 2003 breakout level in August 2008. Intense selling pressure continued through October’s market crash, finally ending just above the 2003 low in March 2009. The subsequent bounce carved two strong rally waves, completing a 100% retracement into the prior high in 2013.
A breakout into 2014 failed to attract sustained interest, yielding narrow range-bound action on top of new support. Committed bulls finally returned after the 2016 election, unleashing a powerful rally wave that stalled just below $400 in October 2018. The stock fell to a 52-week low in the fourth quarter, while a February 2019 breakout posted an all-time high at $446.01 less than two weeks before an Ethiopian MAX crash killed all 157 passengers and crew.
BA Short-Term Outlook
The monthly stochastic oscillator entered a complex sell cycle in March 2018, finally reaching the oversold level for the first time since 2008 in February 2020. It has now stretched into the extreme reading posted at that time (red line), predicting that current downside may be unsustainable. However, bottoms take time to form, as we discovered nearly 12 years ago, telling sidelined investors to keep their powder dry until this indicator crosses into a new buy cycle.
Price action into February 2020 completed a 100% retracement into the December 2018 low, also completing a double top that broke to the downside earlier this month, generating a measured move target equal to the 2019 rally wave. That measures to $138, or about 13 points below Thursday’s low tick. The decline has reached long-term support at the 200-month exponential moving average (EMA) at the same time, raising the odds that the stock may be at or near a multi-week bottom.
The Bottom Line
Boeing shares broke deep support between $290 and $300 earlier this month and dropped nearly 150 points in a vertical trajectory that may indicate selling capitulation and a tradable low.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.