Boeing dives as trade headwinds rise
Tit for tat
It was little surprise that Boeing, the largest U.S. exporter by dollar value was not spared during Friday’s Wall Street sell-off following the announcement of U.S. tariffs on some $50bn in Chinese imports. The news was followed later by an announcement by China of tariffs totalling $50bn, including $34bn on U.S. agricultural products to be introduced on 6th July and the date of the remaining $16bn duties to be set later. The White House recently mooted a further $100bn in tariffs in case of retaliation, like the one China announced on Friday.
Investors, who saw Boeing shares ascend by a quarter in 2018 up to the beginning of last week, will be keen to estimate potential downside. Boeing has smashed forecasts this year and upgraded profit forecasts in June. There’s little reason, for now, why near-term trade headwinds should damage those forecasts much, but the stock can still decline further, after losing 4% last week, in case of further escalation.
TECHNICAL CHART FACTORS
On a technical basis, Boeing’s share price reversal owes much to well-corroborated upper rising trend resistance that connects highs on 21st March and 21st May and 6th, 7th and 11th June. On the downside, an even more strongly corroborated rising line goes all the way back to May 2017, though on Friday price was some distance from that lower trend. Either way, together, the upper and lower trend form an expanding wedge pattern. Completion is typically marked by a sustained break out, though beforehand the pattern acts very much like a rising channel trend. So far, Boeing has merely bounced off the top of the channel as it did definitively in May and June following several close approaches over the course of pattern.
In the context of Boeing’s 232% advance, from lows in February 2016 that preceded the stock’s last falling trend of any length, a widening wedge pattern could indicate a coming reversal. Over the perspective of the year, it is notable that BA has etched two new record peaks near each other at $371.6 on 28th February and $374.5 on 7th of June. This so-called ‘double-top’ consonance of highs confirms strong resistance usually preceding a decline. Boeing shares have fallen more than 5% at their worst since the latter date. On Friday, price formed a candle with a lengthy wick and tail. The motif denotes almost equal session time dominated by determined buyers and sellers. Indecision is implied, perhaps also a struggle to avoid further losses. With Boeing already through prior $358 support (a 78.6% Fibonacci interval of the late-February to early April fall) sellers had scored a victory.
Weak and strong props
Clear short-term support was visible near $352. Earlier in the month though, BA lost 21-day exponential moving average support. That noise-reducing trending indicator has also inverted lower, in keeping with a reversal by the Relative Strength Index (RSI) oscillator. A 61.8% Fib notched on the same move described above could offer support. Typically support or resistance is strengthened when it has served either function for price on the way up or down. The 61.8% level ($348.4) capped Boeing three times between March and May. It is the last major staging post before, ultimately, a key test of the lower wall in the broadening wedge pattern.
Below the latter, if such a move occurs, the shares would be in a confirmed and perhaps severe correction phase. The 200-day moving average is not visible in this chart due to price being well above it, by almost 60 cents. Drift so far from that key average price can be interpreted as a condition for reversion. In the current case, that process would also be to the downside. The coming week will be key in deciding the extent to which these bearish indicators are realised.
Figure 1-Technical analysis chart - Boeing Co. - daily intervals
Source: Thomson Reuters and City Index
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.