Boeing (BA) should continue to be a good long term investment with the amount of sales that it has. But in the short term with the economic conditions, the present bearish trend may offer a nice short term income play for investors who are interested. There are conditions and press that may keep it bearish for the short term.
Airplane Sales
With the current economic environment in Europe, coupled with the weak macro economic outlook in the United States, China and India, certain classes of planes are doing well while others are lagging. One challenge Boeing has is the sales of its super jumbo jet. It was originally built anticipating sustained economic growth, figuring increased travel would make airlines develop infrastructures to increase capacity without adding new air routes. Well, the anticipated growth is not panning out, and present conditions are making it hard for airlines to find 450 travelers for a jumbo jet route. For this reason, a number of airlines have either decreased or delayed the orders for these giant birds. Only 5 have been ordered all year and this hurts Boeing's bottom line.
It makes sense that smaller planes are doing better. Midrange planes are averaging just over 100 new orders per year since 2004, and the smaller Boeing 737 series has already had over 600 orders this year.
GE Engines may add to a short downturn
US aircraft safety investigators have called for grounding certain Boeing 787s and 747-8s powered by General Electric engines. The concern for cracks in the engine as well as in the mid-shaft fans is the reason. It wants planes inspected. The latest engine failure to be revealed was actually discovered during an ultrasound inspection on 13 August, but it was not disclosed to the public.
Even though I believe Boeing is (and will continue to be) a good long term investment, I do not believe the short term conditions and news environment will move the stock up
Technically Speaking
From June through the present, Boeing formed a bearish half arc that may have found a support point at 69.20. If not, it may continue down to about 67.00. The bearish half of the arc started at the end of July and continues today. The RSI indicator has supported every move of the stock and is very bearish presently. It is not giving us any indication that the stock is gaining strength to reverse positions, at least not yet. The MACD has a possible positive divergence forming but it is too early to tell. If this is the case and it is standing alone, it is a sign of a possible consolidation phase, but not a reversal trend. The Bollinger Bands have been bearish for about 3 weeks now. I will be interested in seeing if the RSI can identify higher lows if the stock continues to move down. But presently, looking at the chart, I would still have to take a bearish lean on the stock.
(click to enlarge)
The Options Play
The stock is presently trading at $69.95, but I am not bullish on the stock just yet. I can see it rising to the $72-73 range before it comes down. So I am looking at a longer term bearish strategy.
- Buy a February 2013 put with a strike at '70.00' (priced at $4.50)
- Sell a February 2013 put with a strike of '67.50' (priced at $3.30)
- Net Debit to Start: $1.20
- Maximum Profit: $1.30
- Maximum Risk: net debit
- Maximum Length of Trade: 4 months
Reasoning behind the Trade
- Jumbo sales not where they were projected to be.
- GE engine re-inspections contribute to bad press
- Trading with the present trend
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
