Boeing Stock Could Underperform Into 2020

Dow component The Boeing Company (BA) is trading 2% lower on Wednesday after reporting a massive $5.82 earnings per share (EPS) loss on a 35.5% year-over-year decline in second quarter revenues as a result of the 737 MAX grounding. Amazingly, the EPS number exceeded analyst estimates by $0.84, reflecting Wall Street's massive confusion about the aerospace giant's profit and revenue outlook in the next one or two years. 

The company has suspended full-year guidance while it attempts to estimate the grounding's bottom-line impact. Unfortunately, self-inflicted wounds at the start of the crisis have delayed the overdue evaluation because the company spent early efforts just blaming others and seeking political support. Reality has finally come to roost, dropping Boeing stock into the bottom third in Dow relative strength.

BA Long-Term Chart (1995 – 2019)

The stock rallied above the 1990 high at $30.94 in 1995, entering a powerful uptrend that topped out above $60 in 1997. A breakout in the fourth quarter of 2000 stalled above $70, ahead of a steep downturn that posted an eight-year low in the mid-$20s in 2003. The subsequent recovery posted impressive gains during the mid-decade bull market, completing a breakout in 2005, followed by continued gains into the July 2007 top at $107.83.

It fell nearly 80 points before finding support at a six-year low in the upper $20s in March 2009, while a bounce into the new decade stalled at the .618 Fibonacci sell-off retracement level of the bear market decline. It cleared that barrier in 2013, completed a breakout above the 2007 high a few months later, and stair-stepped above $150 in 2015. Another breakout in 2017 presaged the most prolific gains of the decade, reaching $372 in March 2018.

The stock fell to a 52-week low under $300 in the fourth quarter swoon, while the 2019 bounce continued into March 2019's all-time high at $446.01. All hell broke loose a few days later when a second 737 MAX plane crash forced the grounding of the worldwide fleet. Technical damage has been contained despite the tragedies, with the stock oscillating around the midpoint of the seven-month trading range.

Price action has held a trendline of rising lows since the 2016 election, with bounces at that support level in December 2018 and June 2019. As a result, the long-term bullish outlook will remain fully intact as long as the stock trades above $340 or so. Conversely, a breakdown is likely to trigger much lower prices as major sell signals force long-time bulls to hit the exits. The 2018 low at $292 will mark the first downside target if that scenario unfolds in the coming months.

BA Short-Term Chart (2017 – 2019)

The on-balance volume (OBV) accumulation-distribution indicator posted an all-time high in February 2018 and entered a modest distribution phase that ended in December. The 2019 uptick failed to reach the prior high, setting off a bearish divergence that preceded the fatal catalyst. Fortunately for bulls, OBV bottomed out a few days after the grounding and has held above the low into the third quarter, revealing plenty of bottom fishing by investors who expect the MAX to eventually return to the friendly skies.

The stock needs to trade into the March breakaway gap above $400 to improve the long-term outlook because it's still exposed to new lows. OBV and price action have carved potentially lower highs in the past four months, indicating that limited buying pressure is running out of steam. Gravity has the power to work as well as departing shareholders in this scenario, breaking long-term trendline support and dumping the stock into a selling climax.

The Bottom Line

Boeing has entered a critical holding period while investors evaluate the impact to short- and long-term profits.

Disclosure: The author owned an aerospace fund with a 23% weighting in Boeing stock at the time of publication.