When the negative news hit the wire yesterday I decided to look at BA chart. At this point in time I am not interested in trading it. Because I trade companies with strong fundamentals which fell out of favor. I want to buy free-cash-flow machines traded at under 12 Price-to-Free-Cash-Flow. And I want them when everyone else hates them. When analysts downgrade them and everyday shorts them. Over last two months I made ridiculous amount of money buying EA, ATVI, STMP, WTW, URBN… By the way I urged you to buy them with me on this site. Just click the tag #valueinvesting in the footer of this page.
But BA does not fit that criteria. It’s a great company with Return on Capital of 95% and Net Margin of 10.3%. The problem for me Boeing is still liked and respected. It is traded at 16.2 Price-to-Free-Cash-Flow.
Anyway, lets talk about charts. First, if you look at a monthly chart you will get a clear Five Wave Up fractal off 1988 low. We are very close to finalize the strongest part of the rally, its wave ( 3 ) up. The problem for bears is that the structure will be completed only after this pullback followed by another strong rally to a new All Time High.
If you zoom-in to Daily chart ( below ) you will clearly see the green box highlighting a strong demand zone for this stock. Now I hear you arguing that the bestselling jet 737 Max grounded and that is a disaster that would land the stock. Yes, Boeing did a huge mistake of not describing properly its new MACS ( Maneuvering Characteristics Augmentation System) that automatically pushes the jet’s nose down to reduce the risk of stalling.
However, when you trade stocks you have to make a choice. You either trade charts or news. I trade charts and the only reason why I discuss news about Boeing because I am a fan of aviation industry and I read everything about planes. But if you trade charts based on wave analysis you should keep yourself detached from the drama. Otherwise they would affect your trading.
I guess Boeing will change the software, retrain pilots and the stock will run again. Boeing has a great defense and could say that pilots still can counteract and trim stabilizer manually. It is a part of standard procedure “Runaway Stabilizer” (see below). This is exactly how pilots saved the previous flight on that crashed plane of Ethiopian Airlines according to their report.