Tough Year Ahead for Boeing (BA)

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Dow component The Boeing Company (BA) faces a tough 2021, with the 737-MAX’s return to the skies shifting focus to structural and economic issues that will weigh on revenue for several years at a minimum. That sentiment was evident in the end-of-year tape, with news of the jetliner’s airworthiness failing to attract buying interest after a quick short squeeze, dropping the aerospace giant back under resistance in the $230s.

Key Takeaways

  • Boeing remains in a secular decline, despite the 737-MAX’s return to the skies.
  • Low business travel budgets and idled supply will weigh on revenue for years.
  • Demand for big jet production may not return to pre-2020 levels for years.
  • 2021 price action may be confined within a relatively narrow trading range.

The 737-MAX drove price action through most of 2020, with investors ignoring the broad-based collapse of business travel around the world and its long-term impact on revenue. Bill Gates recently predicted that up to 30% of employees will be working remotely by the middle of the decade, potentially cutting business travel budgets in half. Boeing and airline carriers are highly dependent on that income and higher average ticket prices paid by businesses.

The jetliner is flying once again, but the grounding crushed the order backlog at the same time the pandemic forced carriers to mothball parts of their fleets due to lack of demand or mismatched capacity. Those idled aircraft now mark huge supply that carriers can tap for years, softening the demand for new planes. Lucrative big jet production will take even a greater hit, with the 787 Dreamliner’s 248 to 296 seat configurations failing to match reality.

Mixed Wall Street consensus on Boeing stock matches present and future headwinds, with a “Hold” rating based upon eight “Buy” and seven “Hold” recommendations. More importantly, four analysts still recommend that shareholders close positions, despite the MAX’s highly touted return. Price targets currently range from a low of $137 to a Street-high $307, while the stock is set to open Tuesday’s session about $22 below the median $228 target.

Supply is a fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. Supply can relate to the amount available at a specific price or the amount available across a range of prices if displayed on a graph.

Boeing Weekly Chart (2013 – 2021)

TradingView.com 

The stock posted a six-year low in 2009 and turned higher, carving a two-legged recovery that completed a 100% retracement into the 2007 high near $108 in 2013. It broke out immediately and stalled quickly, giving way to sideways action that tested new support repeatedly into February 2016. Committed buyers returned in September of that year, generating a positive feedback loop that mounted three-year resistance after the presidential election.

Price action posted impressive gains into 2018, stalling above $371 and easing into a trading range that hit a 52-week low in December. A final buying surge posted an all-time high at $446.01 in March, just before an Ethiopian crash triggered the worldwide MAX grounding. The stock held support near $300 into February 2020 and broke down, spiraling into March’s seven-year low, ahead of a recovery wave that ended at $234 in June.

The October low at $141.58 set the stage for a fourth quarter rally that mounted June resistance and the 50-week exponential moving average (EMA) in early December. However, the rally reversed below the 200-week EMA, while selling pressure into year end failed the breakout. In addition, price action never filled the March 2000 continuation gap near $250, confirming that the downtrend remains fully intact. However, there’s now a higher low in place, raising the odds for mixed action in the first half of 2021 rather than a quick descent to new lows.

A continuation gap occurs when trading activity skips sequential price points, usually driven by intense investor interest. In other words, there was no trading, defined as an exchange of ownership in a security, between the price point where the gap began and where it ended.

The Bottom Line

Boeing stock remains firmly entrenched in a secular downtrend even though the 737-MAX jetliner has returned to service.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.



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