Boeing's third-quarter results, reported before the opening bell this morning, missed earnings-per-share estimates. The stock dipped to $330.86 premarket, then recovered to open at $345, up from Tuesday's close of $337.
My call is to reduce holdings on strength to between monthly and semiannual pivots at $363.47 and $374.35, respectively. Given all the uncertainties explained below, do not buy the stock unless it declines to its annual value level at $302.60.
Be aware that the stock traded as low as $292.47 on Dec. 26, between the two 737 MAX crashes. In my opinion, the company is too optimistic about the possible fourth-quarter return to the skies of the 737 MAX aircraft.
Most on Wall Street have been patient with the Chicago aerospace company but are ignoring the issues that came to light on Monday concerning the 737 MAX going back to early 2016. A host of legal, political and regulatory concerns should limit the stock's upside.
I am an engineer by education who spent the first five years of my career in the aerospace industry at Grumman on Long Island. I was involved with standards and procedures on the manufacturing floor, where aircraft for the Navy were built. Back in 1966 through 1970, it was all about quality control.
Now we know that Boeing has been negligent on airline production, not only for the MAX 8 but also for the 787 Dreamliner built in Charleston, S.C. Quality control is the key, but Boeing seems to have forced workers to increase production, ignoring concerns by the engineers and workers on the production lines.
Today Boeing faces many issues that investors should be aware of:
- The Boeing 737 MAX 8 is extremely important as it accounted for 60% of the company's revenue last year.
- The backlog for the 737 MAX is 4,000 orders, but will some be canceled? The problems may be too complex to fix with assured safety.
- The Charleston plant that makes the 787 Dreamliner has had employee complaints that manufacturing standards are unsafe. Boeing has reduced production for this model due to the trade war with China.
- Future flights of the 737 MAX continue to be pushed further out on the calendar. Boeing implies that one regulator will certify the aircraft this quarter, but overseas regulators will likely delay certification into early 2020.
- Boeing will face criminal investigations and many lawsuits from victims' families. I bet Congress will take testimony before the plane takes off again.
- A problem with the 737 MAX is solidifying the interface between human pilots and the AI interface on takeoff issues.
- Loss of trust in email messages goes back to early 2016. The company ignored concern about the safety of the flight-control system in the 737 MAX 8.
The Daily Chart for Boeing
The daily chart for Boeing shows that the stock set its all-time intraday high of $446.01 on March 1, months after the Lion Air Boeing 737 MAX 8 crashed in October 2018. This changed quickly with a price gap lower on March 11 following the Ethiopian crash.
The stock closed 2018 at $322.50 which was an important input to my proprietary analytics. Its annual value level at $302.60 remains in play until the end of 2019.
The close of $364.01 on June 28 was an important input into my analytics. Its semiannual pivot at $374.35 has been a magnet since July 19 and was crossed to the downside on Oct. 17.
The close of $380.47 on Sep. 30 was the latest input to my analytics and the fourth-quarter risky level at $447.81 seems unachievable. The monthly pivot for October held on Oct. 1 then failed to hold on Oct. 18.
The Weekly Chart for Boeing
The weekly chart for Boeing is negative, with the stock below its five-week modified moving average at $361.91. The stock remains well above its 200-week simple moving average or "reversion to the mean" at $260.48.
The 12x3x3 weekly slow stochastic reading is projected to decline to 66.13 this week down from 73.73 on Oct. 18. Back at the March 1 high this reading was above 90.00 at 92.14 which made the stock an "inflating parabolic bubble" which popped as expected.
Trading Strategy: Buy weakness to the annual value level at $302.60 and reduce holdings on strength to its monthly and semiannual pivots at $363.47 and $374.35, respectively.
