Chart Of The Day: Boeing Shares Poised To Take Flight

Chart Of The Day: Boeing Shares Poised To Take Flight

The Federal Aviation Administration yesterday confirmed a critical set of test flights of Boeing’s (NYSE:) beleaguered 737 MAX jets started on Monday, after also verifying the manufacturer was carrying out a series of certification flights to check changes made to some of its software. Boeing shares surged at the open, extending the day’s gains to a whopping 14.4%—almost $195 in added value.

The US aviation regulator grounded the company’s 737 MAX aircraft last year, after two crashes, a few months apart, killed over 300 people. 

Now, it appears shares are poised for additional gains boosting the stock from its devalued state.

Shares of Boeing were gutted by almost 75% during the COVID-19 selloff that took place over the five weeks from the high of Feb. 12 and the low of March 18. For long-term investors, buying stocks at a quarter of the price should be a no-brainer.

For traders, there are some bullish patterns now visible on the charts.

Yesterday’s jump completed a falling flag, or wedge. The difference is academic. All traders need to know is that the pattern projects a pause within the underlying trend. An upside breakout shows that all the selling that materialized inside the pattern has been absorbed and buyers are willing to increase their bids to find new sellers at higher prices.

The 54% surge over the 4 sessions that preceded the interruption to the trend was a telltale sign to technicians that the pause that followed was a bullish congestion, a period when early bulls lock in profits, giving a chance for fresh bulls to take over and carry the load. 

These short-term pauses within a trend give early bulls the opportunity to catch their breath from a wild ride and do some soul-searching. Some may have been second-guessing the too-good-to-be true move. However, the pattern in this particular stock suggests the move was dominated by “informed money”—people that had a reasonable idea of what the FAA’s decision might be.

The underlying trend is up, as the price registered two rising peaks and troughs, which shows that both buyers and sellers agree Boeing’s stock is underpriced.

Buyers and sellers were also kind enough to make their trades in a well-defined pattern—a rising channel—with well-defined parameters of supply and demand. 

The 50 DMA provided the pattern with support, while the 100 DMA provided resistance. The price surpassed the 100-DMA, suggesting that what was previously supply had evaporated, or, better yet, turned into demand.

The upside breakout has completed the pattern and set a positional chain reaction in motion, even with the the rising number of coronavirus cases dominating the news. Taking into account the hypersensitivity of Boeing shares to potential coronavirus lockdowns, the momentum appears to be in place for another leg higher. Therefore, we’re setting our target to $230.

Trading Strategies

Conservative traders would wait for a pullback to test the pattern’s integrity, as the price finds support.

Moderate traders may wait for a similar return-move, for a better point of entry, rather than to confirm the trend. 

Aggressive traders may jump in at will, provided they can afford a wide stop-loss to include whipsaws, or a smaller stop-loss, depending on the amount they are willing to lose in the event of such volatility.

Trade Sample

  • Entry: $194
  • Stop-Loss: $182
  • Risk: $12
  • Target: $230
  • Reward: $36
  • Risk-Reward Ratio: 1:3

Note: This is just a trade sample. It is designed to demonstrate the primary components of a viable trade plan. Feel free to change the parameters to your timing, budget and temperament. Remember – trading isn’t about winning or losing one trade. That’s gambling. Trading, like any business, is about running with your wins and cutting your losses over time.

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