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STATISTICS


Boeing Bear Market Begins

10/04/11 09:25:10 AM
by Alan R. Northam

Boeing sells out to the bears.

Security:   BA
Position:   N/A

The lower panel of Figure 1 shows the long-term statistical analysis of Boeing (BA). This figure shows the 200-day linear regression trendline (solid blue line), the upper one sigma channel line (dotted red line), the upper two sigma channel line (solid red line), the lower one sigma channel line (dotted green line), the lower two sigma channel line (solid green line), and the lower three sigma channel line (dashed green line). Besides their statistical significance, the red channel lines act as resistance and the green channel lines support.

FIGURE 1: BA, DAILY. This chart shows the daily price chart of Boeing in the lower panel along with its upsloping 200-day linear regression trendline and its associated upper and lower channel lines. The top panel shows the linear regression slope indicator followed by the R-squared indicator. This chart shows BA breaking down below the lower three sigma channel line in early August 2011 to begin a primary bear market trend.
Graphic provided by: MetaStock.
 
Note that from mid-August 2010 through mid-June 2011, price moved between the upper one sigma channel and the lower one sigma channel line. This price action is normal for an uptrend. However, it also shows that the market is not as strong as a market that hugs much closer to the linear regression trendline (solid blue line).

In late June 2011, price broke down below the lower one sigma channel line to signal the possibility of a secondary market reaction. Charles Dow wrote that there are typically two secondary reactions during a market trend, one early in the trend and one just before the ending of a trend. Secondary reactions normally run deep and often retrace from 33% to 66% of the rally from the previous secondary reaction. Thus, a move below the one sigma channel line is a sign of the beginning of a secondary reaction. Dow wrote that secondary reactions can be deceivers in that it is difficult to tell a secondary reaction from the beginning of a new primary bear market. In the case of Boeing, this secondary reaction was a deceiver.

In early August, BA went on to break down below the lower two sigma channel line to warn of a possible reversal in trend from a primary bull market to a primary bear market. A few days later, BA broke down below the lower three sigma channel line to signal that a reversal in trend was at hand.

Looking at the linear regression slope indicator in the top panel of Figure 1, note that in mid-September, this indicator has broken down below its zero line to indicate that the new primary trend has developed in the downward direction. The next lower panel shows the R-squared indicator having moved above its critical level in late September, indicating a 95% confidence level that this new primary bear market trend will continue.

In conclusion, this statistical analysis shows that the primary bull market trend for Boeing has come to an end and a new primary bear market trend has begun. As long as the linear regression slope indicator continues to move downward below its zero line and the R-squared indicator continues to move upward above its critical level, the bear market trend will continue.



Alan R. Northam

Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.

Garland, Tx
Website: www.tradersclassroom.com
E-mail address: inquiry@tradersclassroom.com

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