Is Boeing the most dangerous stock out there? Is it a major threat to the current market rally, specifically the $DJIA?
No I’m not talking about Boeing’s fundamentals. The company looks to be doing great. I’m talking about the charts and the technicals. The charts of a major industrial company and $DJIA component increasingly reminds me of the dot.com mania. Panic buying. No concern for technical extensions, divergences, any sense of risk. Just get me in the stock no matter what. And perhaps that’s symptomatic for the larger market.
Let me show you some Boeing charts on multiple time frames, they are eye opening.
Let’s start with the monthly chart:
New highs on a very pronounced negative RSI divergence. As you can see this set-up is historically a red flag that has produced major reversions in the stock before.
The stock had a massive run since 2017, perhaps similar to the run from 2003-2007. But it’s actually much more dramatic than that.
Check the yearly chart:
49% above its yearly 5EMA (exponential moving average). On its second year entirely disconnected. The slope on a linear chart looking mighty exponential. To be bullish the stock here is to presume that there is no technical reconnect risk and the stock will continue to extend ignoring all history of the stock regularly reconnecting with its yearly 5 EMA.
We’ve seen movies of excessive optimism before:
That was $CSCO in 2000. The company then could do no wrong. But we also know how that movie ended:
Massive extensions don’t last and are subject to reversions to the mean. Not saying that $BA will meet a similar fate, but the technical context matters.
The stock is behaving exuberant and is making new highs on massive negative divergences. Here’s the weekly chart:
Does this look compatible with any of the stock’s history?
It’s currently trading 26.3% above its weekly 50 MA (moving average).
The daily picture doesn’t look any less frothy:
19.2% above its 50 day moving average with an RSI parked in the 82 area.
Bottomline: The stock is massively technically extended, overbought and engaged on a trajectory that can be described as vertical which puts it at high risk of a major reversal to come and hence, to my eye, a very dangerous stock at this juncture. Now vertical and overbought stocks can stay vertical and overbought until something breaks, but as the stock has been a major contributor to the recent $DJIA rally it lends fuel to the argument that the $DJIA itself is at reversion risk, the case for which I outlined yesterday on TradingNation:
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Categories: Market Analysis
Eye opening. Thanks.
Always enjoy and respect your insights. Thanks Northy!