Take-downs and take-offs

  • BA up more than 15% after falling to 14-month low
  • Stock has tested 50% retracement of rally three times
  • Most BA options have lower-than-average implied volatility (IV)

This week started with some big news in the airline space—the merger of Spirit (SAVE) and Frontier, a deal that could create the fifth-biggest US airline.

Meanwhile, Boeing (BA)—the company that builds a lot of the aircraft for Spirit, Frontier, and every other carrier—is about two weeks removed from its most recent dose of big news: an earnings miss (-$7.69/share vs. an estimate of -$0.30), which was followed by a three-day, 10% down swing:

Chart 1: Boeing (BA), 9/16/21–2/7/22. Boeing (BA) price chart. Bounced after earnings sell-off.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

Boeing’s big miss was attributed mostly to production delays with its 787 Dreamliner, which resulted in a $3.5 billion charge in Q4.1 The stock, which had already been retreating from its mid-January high, tagged a 14-month low when it fell to $183.77 on January 28.

But that also marked the third time since early December BA has pulled back below $190 and bounced. Morgan Stanley & Co. analysts were among the voices citing “more positives than negatives” in the wake of the earnings surprise, including FAA approval of the 787 airliner fixes as soon as April.2 Thanks to yesterday’s 3%-plus intraday jump, BA is now up around 16% from its late-January low.

Despite its specific business issues, though, BA has hardly traded in a bubble. For nearly two years, the entire airline industry has been subject to the twists and turns of the pandemic, with its stock alternately rallying on news of declining infection rates and vaccination developments, then occasionally pulling back amid reports of new virus variants and reinstated travel restrictions.

It’s been a slog, but overall, the trajectory has been up: The S&P airline index is up 100% from its March 2020 lows, although it peaked in March 2021 and gave back a little more than half that before stabilizing in recent weeks.

Chart 2: Boeing (BA), 3/16/20–2/7/22 (weekly). Boeing (BA) weekly price chart. Retraced half of 2020–2021 rally.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

Boeing’s longer-term chart tells a similar story. The stock gained 213% between March 2020 and March 2021, while its late-January 28 low (like the two December lows) occurred around the 50% retracement level of that rally.

Tomorrow may be a different story, but this support level has held for more than two months. That simply means buyers have entered the market at this level, for whatever reason (they may not next time). Experienced traders know that while “technical” levels are made to be broken, until they are, they are sometimes useful guides to gauging bullish and bearish sentiment.

Market Mover Update: T-Mobile’s (TMUS) lesson in time decay continues. On Monday the stock closed 1.1% higher than it did last Thursday, but the February $125 call options closed lower than they did that day (see “Timing and time decay”).

Today’s numbers include (all times ET): NFIB Business Optimism Index (6 a.m.), Trade Balance (8:30 a.m.).

Today’s earnings include: Enphase Energy (ENPH), Warner Music (WMG), Pfizer (PFE), Incyte (INCY), Fiserv (FISV), Harley-Davidson (HOG), New Relic (NEWR), Lyft (LYFT), Paycom (PAYC), Peloton (PTON), XPO Logistics (XPO), Spirit Airlines (SAVE), Chipotle (CMG).


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1 CNBC.com. Boeing posts third annual loss in a row as Dreamliner costs hit $5.5 billion. 1/26/22.
2 StreetInsider.com. Boeing (BA) PT Raised to $288 as Morgan Stanley Sees More Positives than Negatives. 1/27/22.

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