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Boeing: Positive Expectations

06/20/05 07:58:12 AM
by Paolo Pezzutti

The stock is in a stable uptrend, with indications for a consolidation phase in the short term.

Security:   BA
Position:   N/A

The Boeing Co. (BA) principal activities are to offer products and services in the aerospace industry. It is organized in the following segments:

- Commercial airplanes
- Integrated Defense Systems (IDS), which covers research, development, production and support of military aircraft, fighter, transport and attack aircraft, helicopters, missiles, space systems, missile defense systems, satellites and satellite launching vehicles, rocket engines, and information and management systems
- Boeing Capital Corp. (BCC) and other. The BCC finances commercial and private aircraft and commercial equipment.

The company has 157,000 employees and a market capitalization of more than $53 billion. The press in the past few days reported optimism about the industry after the shadows of September 11 and the worst recession in aviation history. Combined orders for Boeing and its competitor Airbus at this week's air show in Le Bourget in France total about 360 aircraft, worth $40.6 billion, including an Alaska Airlines order for 35 Boeing 737s and GE Commercial Aviation Services purchase of 20 Boeing next-generation 737s worth $1.1 billion. Running the numbers, Airbus announced more orders than Boeing as surprise deals with carriers in the Middle East and India moved the balance in the European company's favor. Moreover, Airbus' parent, European Aeronautic Defence and Space Co., is targeting Boeing's lucrative US Department of Defense contracts as well, opening up another front in the battle for primacy in the global aerospace market. Questions about who is going to be the winner of the two jet-makers in the global market is reported frequently in the press. It is difficult to say the outcome of this technological and commercial fight; I can only note that Airbus is currently gaining market share. The Asian aviation market, sustained by economic growth in the region in the near future, will likely provide margins for optimism. Boeing will therefore benefit from the positive general expectations. On the military side, continuous significant investments by the US will sustain growth.

Let's look at the technical situation of the stock. In Figure 1, you can see the monthly chart of Boeing. After hitting new highs at the end of 2000, the company was badly hit after September 11, 2001, when prices reached a low below 30. In 2003, prices went for a new low at $25; these levels had not been seen since 1995. From that moment on, a steady recovery started, with an impressive series of positive months that brought prices up to the present level of $64. In the chart, the indicator I used, the ADX (average directional movement index), attempts to measure the trending quality of a security independent of direction. The greater the ADX value, the stronger a security is trending. Traditionally, it is said that values above 30 indicate an ongoing trend. As you can see, the ADX value is 27 and rising. Prices are stuck to the upper Bollinger Bands, which are now parallel and pointing up. This indicates a current stable uptrend.

Figure 1: BA monthly. The Boeing monthly chart displays the uptrend started in 2003 after two difficult years for the aerospace industry.
Graphic provided by: TradeStation.
In Figure 2, you can see Boeing's weekly chart. The uptrend, started in 2003, more than doubled prices in two years. The trend has been smooth and stable with nice pullbacks to the moving average, allowing to build up on the long positions. After a period of consolidation from September 2004 to March 2005, prices started a new leg, grabbing another $10 and reaching the $66 level. The ADX is moving upward at a level of $33.

Figure 2: BA weekly. The weekly chart presents nice pullbacks during the uptrend that allowed a progressive buildup of long positions.
Graphic provided by: TradeStation.
Figure 3 reports the Boeing daily chart. You can see that prices moved up through an accumulation pattern of expansion and consolidation for the last four months. Boeing printed a top at $66 on June 7, 2005, and then moved back down to support to the moving average with a wide range day on June 14. A congestion marked by that bar has now reached its fourth day. Prices are trying to test the resistance level of $64.80. Bands, however, are closing, with the upper band now flat and the ADX falling, but still printing a value of $31. In this time frame, we can expect a consolidation pattern in the next sessions--possibly a retest of the highs, but mainly a trading range phase with resistance at $66 and support still to be identified.

Figure 3: BA daily. The daily chart provides elements that indicate a consolidation pattern may be ahead in the short term, with good spot low-risk entry points.
Graphic provided by: TradeStation.
On the fundamentals side, Boeing has positive expectations. The global aerospace market, including the military, should continue to grow in the near future, sustained also by the Asian market, which is expected to confirm its economic positive outlooks. On the technical side, there are elements that make me believe that there will be a period of consolidation ahead in the short term, as part of a stable uptrend in the higher time frames. It is a good situation to spot low-risk entry points.

Paolo Pezzutti

He is the author of the book "Trading the US Markets - A Comprehensive Guide to US Markets for International Traders and Investors" - Harriman House (July 2008)

Rome, Italy
E-mail address:

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Date: 06/20/05Rank: 4Comment: 

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