Caution: This Stock Looks Tired in the Near Term

Last weekend at the Dubai Air Show proved to be a spectacular time for Boeing (BA) and Airbus, both of which received large plane orders from the Middle East. The former’s performance also merited a slight bump in Boeing stock.

Boeing collected its 1,000th order of the Dreamliner from Ethiad Airways, which came in with an order for 30 of them in a transaction valued at $8.7 billion, using list prices.

In total, Airbus collected orders for $101.50 billion at the Dubai Air Show, which helped make its 787 family of airplanes its most popular ever and reaching its sales goals years early.

The company thus far has received more than 1,000 orders for the 787 Dreamliner from clients worldwide.

Not surprisingly, Boeing stock rose more than 1% Monday on the back of the weekend’s good news, continuing a steep ascent for BA stock, which is getting increasingly frothy.

Through the lens of the below multiyear chart looking back to 2008, BA’s March breakout earlier this year was significant.

Since May 2011, Boeing stock has routinely found resistance roughly between the $78 and $81 area and particularly in 2012 began to consolidate and coil up just underneath this resistance zone. With the arrival of 2013, BA finally had enough momentum built up to blast past resistance, leading to a near-vertical run higher of more than 80% since March.

In July, BA briefly paused as it ran into its all-time highs from 2007, but Boeing shares merely consolidated in a sideways fashion, which eventually catapulted the stock higher.

Given the steep slope of Boeing stock, traders are left without reference prices on the upside, as BA has been trading at fresh all-time highs since September. Through a technical lens, this leads me to pay closer attention to momentum oscillators and keep a close eye on how far the stock is trading above its moving averages.

Currently, BA is trading roughly 36% above its 200-day simple moving average, which historically speaking is well extended. On the momentum front, I see a mixed picture if I look for negative divergence, yet all oscillators show the stock in overbought readings. The stochastic oscillator, for example, has been tracking a series of lower highs since October, while the stock continues its steep ascent.

From a trading point of view, I thereby raise a red flag, considering the confluence of the losing momentum, Boeing stock’s steep slope and extension above its 200-day MA.

I see little reason to chase BA stock higher at these levels in the near term, although in the medium term — and after some backing and filling — Boeing still looks good for higher highs.

— Serge Berger

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Source: Investor Place