Chart of the Day: BA Set to Take Off to $215 as Airline Lags Recession

12/01/2022

2 minutes read

2022.12.01 09:16

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It is no secret that I am pessimistic about the economic outlook and believe that a definitive recession will follow the technical one which began when declined the first two quarters of this year.

U.S. Federal Reserve chair, Jerome Powell reiterated on Wednesday that he believes “there’s a path to a soft landing,” a claim he previously made on May 4 after the FOMC’s two-day policy meeting.

However, 92% of fund managers in a Bank of America survey foresee stagflation—a combination of contraction, high unemployment, and inflation. This environment would cripple the Fed, as both ends of the economic spectrum are burning simultaneously. If the Fed attempts to stimulate the economy, it will exacerbate already high , which erodes consumer buying power, slowing growth further and exacerbating a vicious cycle.

What is notable about Powell’s newfound optimism is that on Nov. 2 he himself said that although still possible, the chances for a soft landing was as inflation persisted.

However, the irony is that on the same day that he reiterated confidence in his ability to land the U.S. economically softly, he admitted no “clear progress” on lowering inflation—even after the most aggressive interest rate tightening since the 1980s. Remember Powell previously insisted that the spike in inflation was transitory.

Apropos soft and hard landings, how will Boeing (NYSE:) fare in the current economic environment? Let’s look at the stock’s trajectory.

BA Daily

The stock peaked above a pennant in yesterday’s trading with rising volume. Some traders may interpret the price action as a falling flag that provides its breakout, but I would argue against it. The flag’s breakout was not supported by a volume spike. The continuation pattern developed on the neckline of a possible double bottom since April.

However, even if a technician does not want to consider this as a double bottom, as the second low posted was 7% higher, the trend reversed when registering a rising series of peaks and troughs.

Measuring the straight move before bulls cashed out implies a $37 movement from the $178 breakout point, implying a $215 target.

But why would the stock rise? Should a recession not lower flight demand? Typically, yes, but the lockdown caused a unique situation:

There is a shortage of pilots after airlines offered senior pilots incentives to retire to cut costs during the pandemic.
Consumers have saved
Consumers are compensating after being unable to travel

Trading Strategies

Conservative traders should wait for the price to close above $182, remain above the pennant for at least three days, and wait for a return move to confirm the pattern’s integrity.

Moderate traders could wait for the price to penetrate $180 and a two-day filter above the range.

Aggressive traders could enter according to their strategy. Here is a generic example:

Sample – Aggressive Long Position