Boeing Co.’s shares were trending lower Friday, but with the warning of a significant fourth-quarter net loss from the aerospace behemoth, some would question why they are not really falling.
That’s because J.P. Morgan analyst Seth Seifman said the losses “are not shocking” given all of Boeing’s problems—a labor strike, delivery delays, job layoffs, and ongoing difficulty inside the military division.
The warning also had a positive side since the chart of the stock revealed indications of a possible bullish swing in trend. (More on the technical perspective below.)
Late Thursday Boeing issued a warning stating it will reveal a significantly higher-than-expected fourth-quarter net loss and offered revenue projections likewise below expectations.
Though pared an earlier intraday loss of as much as 2.3%, the stock (BA) slid 0.5% in noon trading. And in Thursday’s after-hours trade, the stock had plummeted as much as 3.9% shortly following the warning.
Though the company’s projection for minus $3.5 billion in operating cash flow was approximately what Seifman, who is positive about the stock, predicted, even with the significant loss from charges. With negative cash flow from operations of $3.9 billion, that was indeed far better than the FactSet estimate.
The corporation underlined that in the most recent quarter it has resumed manufacturing of various aircraft models.
“We know investors were hoping for a quieter quarter but these charges do not disrupt the idea that increasing 737 and 787 production and deliveries can improve FCF, drive de-leveraging and support the stock,” Seifman notes to clients.
Boeing has delivered 22 so far in January, “showing momentum following the strike,” he said following 17 Max jets delivered in December.
Robert Stallard of Vertical Research Partners said he had already considered a “major loss” connected to the labor strike and was anticipating additional charge connected to the defense industry.
“So we don’t think investors will be overly surprised by these eye-watering 4Q losses,” Stallard said, although he did underline that investors shouldn’t overlook these shocking losses. Stallard rates the stock a hold.
Though keep in mind Boeing had provided a warning of a significant loss just before it announced third-quarter data, its loss warning came less than a week before the firm is scheduled to disclose fourth-quarter results on Jan. 28.
According to Boeing’s stock chart, bulls have the momentum.
Boeing’s stock, which reached a two-year low in mid-November, has shown several technical actions that point to a hopeful move higher.
First of all, it has broken out above a year-long downward-sloping channel; bulls have now passed a quick test of that breakout.
The stock has also exceeded past resistance exhibited at both its 50-day and 200-day moving averages. And those short- and long-term trend monitors seem to have evolved into support zones.
And a major underlying technical indicator, the Relative Strength Index, has been displaying signals indicating momentum is now on the side of the bulls.
The RSI can be a difficult metric. Below 30 indicates a “oversold” state, which over the short run could point to a bounce-back. And above the “overbought” level of 70, it points to a near-term decline.
Over the long run, RSI can show an ability rather than a condition, so the ability to become oversold can imply an underlying weakness; conversely, the ability to cross the overboved barrier can suggest underlying strength.
Note that although the stock did rally momentarily with RSI below 30 last March and April, the longer-term decline persisted. And the stock swiftly recovered while the test of the bullish breakout tracked an overbought reading in late December.
Furthermore, RSI has been unable to drop below 30 even though the November low of the stock was much below where it was the previous time there was an oversold signal.
One other consideration is that, while market sentiment is the most pessimistic in nine years, these positive technical signs are arriving.
The most recent exchange figures reveal that in three months to 25.1 million shares, short interest—that is, the number of shares wagered on declining prices—about doubled. Since September 2016, that is the highest count recorded.
Many see short interest as a contrarian clue. In essence, a short bet on the stock would lead one to buy. Particularly if the bearish bet is crowded, trying to cover a short while the stock is gaining might lead to a “squeeze” that sets off a surge higher.
Following earlier resistance at the $190 to $192 level, some levels to watch to the upside are the $180.50 to $182.50 range, which behaved as opposition in late December.
On the down side, if the longer-term trend truly swings to the bulls’ side, the 50-day and 200-day moving averages—currently at $163.64 and $168.58, respectively—as well as the top of the last bearish channel—currently at roughly $169.50—should stop falls.
