Shares of Boeing Co (NYSE:BA) rallied nearly 10% Wednesday, bringing the year-to-date move to a stellar 50%. While I want to respect the move, I also see BA stock as a result having reached historic overbought readings in the near-term. This sets up a trade for the trader while allowing active investors to wait for a consolidation phase to pass before buying back into the stock.
So you know, Boeing reported a strong set of earnings on July 26 — $2.89 per share which looks particularly strong versus the loss it reported in the same quarter one year ago. The company also gave investors strong guidance and now expects EPS to come in around between $9.80 – $10 compared to the previously guided $9.20 – $9.40.
For those of you who are regular readers of this here daily column, you know that as a basic principle I stay away from “chasing” stocks higher or lower, particularly if the move higher comes on top of an already steep rally.
To wit, BA stock currently displays exactly such an overshooting move with a vertical rally both on its multiyear as well as its intermediate term chart.
BA Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
To gain perspective for trades in any time frame, it is in my eye crucial to look at charts in multiple time frames. On the multiyear weekly chart we see that with Wednesday’s 10% pop, BA stock is now snuggly tight at the very upper end of a wide up-trending channel (black parallels).
Meanwhile, upside momentum as represented by the MACD oscillator at bottom of the chart is reaching historic overbought readings. This oscillator simply measures how far apart the moving averages are, which in turn tells us how steep or in some cases parabolic a rally or sell-off is.
On this chart also note that the move from the lower end of the channel to the current spot at the top of the channel has essentially taken place in a straight line, which in my 20 years of experience is not a sustainable move through the near to intermediate-term lens.
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the daily chart, not surprisingly, we see an equally parabolic move to the upside where Wednesday’s post-earnings rally has pushed BA stock above the intermediate-term uptrending channel (purple-dotted lines). Here, too, the MACD oscillator is well overbought as a result of the moving averages diverging significantly.
Ultimately this vertical move in BA stock will lead to a mean-reversion trade where the stock either corrects 10%-20% or corrects in time, which is to say that it will work off the overbought conditions in a sideways move.
Before traders can leg into bearish trades, however, BA stock has to signal us some exhaustion buying by way of a good down-day or a failed intraday rally. Once this takes place, traders could look to buy puts or put spreads, short the stock or sell out of the money call spreads. Once this happens, then a first downside target for BA stock would be around $215, which would also fill the up-gap from July 26.
Check out Anthony Mirhaydari’s Daily Market Outlook for July 27.
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