I am a fan of technicals and the Boeing (NYSE:BA) charts suggest that its stock problems really started once it lost the $302 per share level. That triggered a bearish trade to target $220. Under normal circumstances it should have found support at $270 but the bears finished the job and then some. BA stock has crashed like it never has before.
Today’s thesis is that this is an opportunity for the brave.
For most people it’s the headlines that matter so let’s delve into that aspect of it. The month of March so far has been violent for investors on Wall Street. The stock markets have been setting records and not the good kind. The carnage extended across asset classes, to oil, bond and gold prices. Almost no sector escaped the selling at some point during this correction. But at the forefront in the headlines this past week is Boeing stock.
This is the worst month it has ever had. BA stock was trading $350 per share just a few weeks ago. On Wednesday it fell to as low as $89 per share, an 80% correction from one year ago. At its highest, then, Boeing was $446 per share.
What Went Wrong With BA stock
By now we all know the story behind the overall correction. The world is under assault from the coronavirus. Until the medical community provides us with a vaccine, the level of panic will linger. So far the primary containment strategy has been to shut the world down. As a consequence, people are losing their jobs, and a lot of businesses will not survive. It’s not the end of the world, like billionaire investor Bill Ackman stated on CNBC, but there will be struggles. The game is not over and humanity will prevail, even though we are down on the scoreboard.
The jet maker has it worse than most other companies. First and even before this virus, it had been battling the self-inflicted 737 Max problem. Last year it had a net negative order flow. That wouldn’t be a problem in the long run because it has a backlog for almost a decade. But sitting on a massive inventory of imprisoned 737 jets is costly and created a serious cash crunch. Now a bailout is imminent. We don’t know the details of it or if it will have government conditions.
Help is on its Way for Boeing
Boeing cannot fail because it is one of only two companies in the world that can provide us with flying machines. Moreover it is a big chunk of the U.S. GDP and a large employer. Losing it will cause nationwide harm of large proportions. If it comes to it, the government will have no choice but to save it. On Tuesday President Trump plainly said they will help it.
In addition to the direct virus problems, and its own 737 Max debacle, Boeing also faces troubles from its clients. The airlines are crippled and they, too, are waiting for a bailout. They are suffering tremendous devastation to their businesses. If they can’t pay their operating expenses they will delay or cancel their future deliveries of jets for a long time. If so, then Boeing may not survive a second year without delivering planes and that’s assuming the virus situation is solved very shortly.
I know I sound like a bear on BA stock but I’m not. I was a big fan of it and I favored buying every dip. Alas, management broke the stock last year, and the virus could break the company this year. My hope is that the US will get a grip on this health crisis in the next few weeks so we don’t let that happen. We are starting to hear good news on the potential vaccines and treatment medications, so maybe the statistics will improve and build back some confidence among the masses.
Malaise is Extreme and Rampant
This is a crisis of sentiment, but it has concrete negative implications on the macro economy. Global GDP is going to suffer a big loss. This week we start getting economic reports that include last week’s business disruptions on the U.S. main streets. Specifically on Thursday morning we get the New Jobless Claims report and it could be massive. This past week it was 280,000, next week it could be millions. Such a massive number would spook Wall Street and investors are likely to panic sell one more time. So scared is the White House, that it’s been reported that states have been asked to keep quiet about the horrendous numbers.
This is part of the bottoming process, it is not an event. This time it’s not likely to be a “V-shaped” recovery but more like a “U” and only after we have better news of a vaccine.
Meanwhile and on the next dip if it comes, the S&P 500 index should test 2,040 before finding footing. The Russell 2000 index small caps most likely has already seen the worst of it. There are no hard lines in the sand but rather safe zones and stocks are already in them. This doesn’t mean it’s a bottom, especially not when the CBOE Volatility Index (VIX) is above 70. I still expect the unexpected.
After such a massive repricing of its risk, this is not the time to sell Boeing stock. Some experts think that it is possible if it gets a bailout it comes with conditions from the government that could wipe out the equity. I doubt that the authorities are going to punish the shareholders who did nothing wrong. This is a great American company and it has to be saved. I think our politicians know that.
Nicolas Chahine is the managing director of SellSpreads.com. Join his live chat room for free here. As of this writing, he did not hold a position in any of the aforementioned securities.