Trading the Bounce in Boeing (BA)
Discussed in this article: Boeing Co. ( $BA )
I want to look at Boeing ( NYSE:BA ). You probably know that one of the Dreamliners caught fire. That was the report that sent this stock into a tail spin, pardon the aviation reference, on Friday, well guess what? Right around 12:15 PM and everybody starts selling.
Now let’s figure out how we can trade this type of thing in the future. First of all, unless you are really, really nimble, unless you’re a full-time trader and you see what’s happening on Boeing ( NYSE:BA ), and you get this early, you don’t want to be shorting this stock; again, the caveat is unless you are in on this early. And this is what I mean; if you’re getting down to the third five-minute bar and the stock is still going down, you are too late to short this stock.
Now somebody listening to this video thinks that I’m talking about them, and I’m really not. I’m talking about every person that’s ever tried to short stocks. At some point or another they learn the obvious trade is typically not the correct trade. I’ve got to be clear about this because it’s always misinterpreted, or misunderstood, or under estimated.
If you see the news and you see the stock starting to really sell off you’re probably going to have more time, particularly on something like this. But stop and think about it for a minute. As the news is coming out, we’ll talk about price levels in a second, but as the news is coming out the first thing you hear is, “787 catches fire at Heathrow Airport.” Right away you’re thinking, “Oh, it’s the flaming battery thing, now all of a sudden the FAA is going to do a oops, well forget it, never mind ruling, and the battery fix that they approved is suddenly going to not be approved, and oh my gosh, this is a plagued, jinxed aircraft and that’s that.” Well, Boeing ( NYSE:BA ) isn’t going to go out of business, and the Dreamliner’s not going away.
So when you see a move like this you’ve got to be thinking one word, opportunity. Because you look at this on the daily chart, when has Boeing ( NYSE:BA ) really been letting you in? We had one sell off here, and remember this went down to the 50-day moving average, but typically the stock has been drifting higher for about 15, 16, 17 percent since this break out here, and you’ve only got like one opportunity to get in. The support on this pullback was right at the 50-day moving average, if you look over to the upper left part of your screen here the 50-day moving average was 96.23, the low of the day was 96.31. So this came very, very close, within a dime or so, of testing the 50-day moving average.
So you see this mess unfolding before your eyes on Friday, and you’re saying, “Okay, where is the bottom, where’s this thing going to hit?” You’ve got to be looking at two things, first of all $100.00. Do you know why? Well because the Roman numeral system, it’s just $100.00, traders like even numbers. Nobody thinks, I’m going to sell when it gets to $97.83,” but a lot of them will say, “I’m going to buy if it gets to $100.00;” also, the 50-day moving average. So you’re looking at a $100.00, you’re looking at the 50-day moving average at 99.84, close enough, so you’re saying, “Okay, as this thing falls, if it gets down to $100.00, that’s when I want to start looking to buy.”
Here’s the thing, you never want to try to catch a falling knife, right? This is a falling knife, look at the volume, crescendoing, and by the way, we don’t know that this is a crescendo; we don’t know that this is the volume climax until the following bar. We just see that the activity is getting more and more active and the price is going lower and lower and lower. So what we’re looking for is evidence that this sell-off is over, and our support of $100.00, is actually going to hold.
So this is what you see on the following bar, here this volume bar, which corresponds with here; what are we seeing? We see it’s our first green box; right about here you see the price start to drift inside the lower Bollinger Band. You see this rate of descent start to you lessen, finally the stock is moving sideways. This is a perfect opportunity; this is a perfect time to buy this stock. You don’t have to catch the exact low, only one guy did that. You don’t have to catch the exact low, and frankly, you don’t have to wait for the stocks to start moving higher. This would be different than the way I would typically trade opening gap downs, or something like that; I want to see the stock starting to move higher.
So you don’t have to wait for that; all you want to see is the slope start to shallow out, start to just kind of trough a little bit; then you go ahead and buy this stock. You just have to know that your support level is at $100.00 and the 50-day moving average. Once you buy the stock give it some room to move because it’s going to wiggle a little bit, it’s going to actually wiggle quite a bit.
That’s how I traded Boeing ( NYSE:BA ), and picked up a bunch of call options on it. You can see this stock, once it starts to drift sideways, that’s when you go ahead and pounce on this. We’ll have to see what happens on Monday, but if Boeing ( NYSE:BA ) starts to move higher again, I still think then this is a buying opportunity and you can take some stock, because July 24th is when this company announces earnings; I can’t imagine they’ll be bad, so this big flush here could have been just a pause that refreshes and frees the stock up to move higher.