The bears are out for Boeing.
Shares of the aircraft manufacturer are on pace for their worst week since the second deadly crash of its 737 Max 8 airplane, which led to a global grounding of that model, causing billions of dollars in damage, thousands of flight cancellations and Boeing’s worst quarterly loss ever.
All in all, traders see one thing: “bad news in Boeing, both on the fundamental side — they just made an announcement that they’re stepping back from a … missile program with the Pentagon — and also bad news on the technical front, ” Todd Gordon, founder of TradingAnalysis.com, said Thursday on CNBC’s “Trading Nation.”
That’s creating an opportunity on the downside, Gordon said, pointing to one of Boeing’s longer-term stock charts.
“You’re seeing a little bit of a pattern,” Gordon said. “From the 2009 low, you’re seeing a series of … a double top and a drop.”
But now, Boeing’s 10-year uptrend is “in jeopardy of being broken,” and if investors connect its 2009 low at $30.10 with its 2019 low at $310.90, that creates a trend line that matters a lot to technically focused traders, Gordon said.
“You can be sure that algo[rithm]s and systems traders who are watching trend-line analysis like that, and discretionary traders who are watching technicals would have stop losses below this 340 mark,” he said. “I think, if we were to break that, we would accelerate on the downside as those sell-stops go off, and I think we can take advantage of that.”
To do that, Gordon took to the options market, buying the October-expiration $340 puts and selling the October $320 puts for a total of $6.55. This is a bearish bet that Boeing shares will fall as low as that $320 strike, or roughly 8%, by October expiration.
“What I’d like to do is not call an all-out collapse here in Boeing. I’d like to just go ahead and see if we can play a move down towards the 300 mark, which does correspond with the old lows” from late 2018, early 2019, Gordon said.
But investors have to ask themselves a critical question before putting on any trade in Boeing, shares of which fell 4% in Thursday’s trading session to $349.09, Gordon said.
“How does that [trade] fit in with your overall portfolio or your trading account? You have to answer that question before you put the trade on,” he said.
Boeing shares have fallen by more than 8% this week. The week of the Federal Aviation Administration’s official grounding of the 737 Max 8 airplane, shares fell by over 10%.