Short

Boeing: Descent to $130

Updated

Overview

Boeing ( ) has had a rough several years due to the controversy surrounding its MAX series. Just recently, an incident occurred during a flight on the West Coast where a part of the fuselage blew off during an ascent and required a prompt emergency landing. Fortunately everyone onboard made it safely back to the airport. This follows years after the two fatal Boeing MAX crashes in 2018-2019.

Technical Analysis

This is a new one for me. The BA 1D chart doesn't reveal any obvious patterns and, if anything, was in the process of forming an ascending triangle which is bullish. In light of the breaking news I am fairly confident that the ascending triangle will become invalid then transform into a months long descending triangle.

Utilizing Fibonacci retracement levels, I am expecting decent support around $130. Of course there will always be plenty of opportunity for scalping in-between now and then as the current share price is sitting around $249.

Fundamental Analysis

I will assess the balance sheet and provide a fundamental analysis sometime this weekend. However, I don't believe even a good balance sheet will alleviate the coming selling pressure. The markets are reactive to news and a healthy balance sheet would only mean certain recovery at a later time.

Note

Fundamental Analysis (Q4: October 25, 2023):

-- Current Ratio (current assets / current liabilities ) = 1.15
* 5.8% decrease from December 31, 2022

-- On-hand cash decreased by 53.4% between December 31, 2022 and September 30, 2023

-- Long-Term Debt decreased by 8.6% since December 31, 2022

-- Experienced a Net Loss of $2.2 billion USD which is a 50% improvement from the reported 4.4B loss on December 31, 2022

-- 58% of Boeing's reported revenue was from commercial airplanes

Thoughts:

Boeing's balance sheet was mediocre in my opinion. I wouldn't consider anything I reviewed as horribly alarming, however, it doesn't inspire confidence either. It appears BA is improving at a very gradual rate.

Trade active

BA took a 10% hit today at the open of the market. The support around $225 took the value back up to the 61.8% Fibonacci uptrend retracement (green) but it appears this level has now become a resistance.

I expect further declines this week despite some Wall Street analysts holding their ground with the company. I believe this has resulted in a tug of war between bearish and bullish institutional investors. Eventually though, I do believe the bears will take control and that BA will see significant drops in value.

Prior to the incident BA was forming an ascending triangle. This leads me to believe that many institutional investors were preparing for a breakout in the up direction. As these institutional investors assess the situation, I believe their mindsets will change from "hold through the storm" to "GTFO" which will most likely result in multiple staggered sell-offs that will be similar to what we saw today.

Trade active

Boeing's CEO, David Calhoun, assumed responsibility for the door-plug mishap after the market closed today. He suggested that Boeing made a mistake somewhere in the process and that moving forward they will remain transparent while resolving the discrepancy. However, the exact mistake was never made clear and all MAX-9s will remain grounded until the issue has been identified and fixed.

While I respect his integrity, I don't think the market will be as kind. I believe that this will result in a further crash of share value with a possible short-term support around $210. This price is a 61.8% Fib retracement level with a strong history of supports and resistances within close proximity.

If volume is high and OBV still maintains a negative slope, then further declines are likely.

Note

BA's share price has seen a 7.5% increase over the last two days. It appears to be fueled by the news that Akasa Air -- an airline company in India -- has ordered some of the MAX series and began flying Boeing's 737 MAX 9s; Delta Airlines has also ordered some MAX 10s.

However, I believe that this recovery will be short lived. The domestic issues have not yet been resolved and, beyond this, the technical indicators don't support a strong recovery at this time. The share price is increasing on dwindling volume and a rising wedge has also formed which, if valid, will result in a correction.

I do believe that the $199-$202 range should be closely watched for significant support though.

Trade closed manually

As much as I've been loving the profitability of Puts on BA, I decided it's time to close the trade early and take home profits. This week has given me the impression that Wall Street doesn't intend on being overly critical of the airplane manufacturing company. In fact, the market has seemed uncomfortably supportive which makes me nervous. That said, BA is forming a double bottom around the $200 range.

There is a possibility that support at this level will fail and lower levels will be reached but I don't retain enough confidence in this to hold my positions. Even utilizing Impulse Waves suggests that a temporary recovery to the $280 range is possible. At this point a double top would form at the start of the Correction Waves.

When in doubt, pull out.

Shepherd_Investor

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