Of course, all stocks are riskier at a higher price, but after Boeing ‘s phenomenal performance in the last two years, it is very easy to forget that it can actually go down, as well. It is a risk which must never be neglected. BA just climbed to a new all-time high and the last thing most investors are preparing for is a price decline, especially given the company’s leading market position and increasing earnings.
But instead of using future earnings estimates, which may never materialize, to justify current market valuations, we are looking for early signs of trouble in the form of Elliott Wave patterns. The 2-hour chart below seems to be revealing one such worrisome pattern.
Boeing spent most of 2018 locked in a range between $310 and $370 a share. In fact, the range was getting narrower as time passed until eventually the stock broke out to reach $394 earlier today. The pattern which can explain Boeing’s behavior is called a contracting triangle. It is labeled a-b-c-d-e, where each wave is smaller than the previous one.
The thing about triangles is that they precede the final wave of the larger sequence. This means that once the current impulsive rally runs out of steam, a bearish reversal should follow.
As of this writing, it looks like Boeing is in the middle of a five-wave impulse in wave 5. This tells us that there is still room for the bulls to run in the short run. The $400 mark is supposed to be exceeded and $430 is probably there for grabs, too.
Beyond that, however, the bulls will be walking on thin ice. The anticipated decline can be expected to drag the share price back to the support level of wave 4 near $320 – $300, potentially resulting in a 25% – 30% loss for some. It is time be “fearful when others are greedy“, as the great Warren Buffett once put it.
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