Stock and Junk Bond Traders Hesitate Together

Stock and Junk Bond Traders Hesitate Together


Major Moves

The Boeing Company (BA) stock has been in a nosedive since the tragic crash of one of the company’s 737 MAX planes in Ethiopia last Sunday. The stock was initially able to recover much of the ground it lost on Monday after opening at $371.27 – which was 12.13% lower than the stock’s close price of $422.54 on Friday, March 8 – climbing all the way back up to close at $400.01.

However, in the days since, as more countries have grounded all 737 MAX planes in operation, Boeing shares have dropped back down to test support as traders wonder if the company is going to be able to resolve the autopilot concerns passengers have before too many airlines cancel their orders for the plane.

So far, Indonesia’s Lion Air and Garuda Indonesia have informed Boeing that they will be cutting their 737 MAX orders, and Flyadeal (Saudi Arabia), VietJet (Vietnam) and Kenya Airways (Kenya) are actively evaluating whether they want to modify their current orders.

According to Bloomberg, Boeing has outstanding orders for more than 5,000 737 MAX planes, valued at more than $600 billion. If more airlines start reducing or cancelling their orders, Boeing could be in a world of hurt as traders are forced to negatively revise their revenue and earnings growth expectations.

Looking at the daily stock chart for Boeing, it appears the key price level to watch is approximately $371. As with so many support and resistance levels, we aren’t going to be able to define the exact level of support down to the penny, but we don’t need to get quite that granular.

You can see that the stock has interacted with the $371 price range on multiple occasions, going as far back as late February 2018 when the stock hit resistance. It hit resistance at this level again in mid-June, mid-September and early November 2018. The stock was also consolidating just below this level in late January 2019 before breaking higher on Jan. 30 after the company beat earnings expectations for the fourth quarter of 2018.

This price level is now holding as tenuous support. Boeing has dropped below $371 in intra-day trading, but it has so far been able to rally and close above $371 each day.

If the company can fix its navigation system and get its birds back in the air soon, support may hold. But if Boeing stock drops and closes below $371, it will be a strong signal that traders are cutting their losses, and the stock may be in danger of revisiting its late-2018 lows.

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