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Bombardier and UAL Corp.

12/13/02 11:42:18 AM
by Koos van der Merwe

In my article "Analyzing Bombadier," (November 14, 2002), I concluded that the chart was forming a cup and handle pattern, with a breakout handle at 6.04. How did the UAL Corp's (United Airlines) bankruptcy affect the share price of Bombardier?

Security:   CA:BBDB
Position:   Accumulate

On the chart below of Bombardier (CA:BBDB), I have used the JM internal band strategy to analyze this stock's long-term potential. The company is paying a dividend that offers a yield of 3.6% which could be attractive for a certain class of investor.

The JM parameters are a 15-day moving average offset by 4% and -4%. The chart shows the cup and an elongated handle that slowly developed into a parallelogram. At 5.06, as shown on the chart, it broke below the lower JM band, and gave a sell signal. The price recovered but never broke above the upper band to give a buy signal, so short seller would have remained short.

Bombardier - still there?
Graphic provided by: AdvancedGET.
On December 5th, United Airlines (UAL Corp.) announced that it was going into bankruptcy. The market immediately sold Bombardier shares as investors believed that the company, whose main business is to manufacture regional jet planes, would be severly affected by the bankruptcy. The share had dropped to 4.46 when a hanging man candlestick pattern formed, suggesting the price had bottomed and should start rising.

The share has started recovering, and recent fundamental reports state that Bombardier Inc.'s credit rating and outlook will not be affected by UAL's bankruptcy filing because jet orders have not been cancelled or deferred.

The possible cup and handle pattern remains in place, and a break above the upper JM band at 5.59 would be a strong suggestion that the resistance level of 6.06 could be broken, confirming the JM buy signal. Do note that my preferred stochastic (21, 5, 3) is also at oversold levels.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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Date: 12/15/02Rank: 4Comment: 

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