Boeing (BA) in Breakout Mode
01/11/2010 11:20 am EST
For those who may have missed it, shares of Boeing (BA) broke to new recovery highs out of a rising wedge or ascending triangle pattern on the daily chart, sending prices higher in solid breakout mode.
Let’s take a look at the daily chart to see this breakout, as well as upper resistance levels to watch and lower support levels to guide traders.
Starting with the June 2009 price high of $52 per share, Boeing then moved into a rising consolidation pattern, which is a hybrid between a rising wedge (traditionally bearish) and ascending triangle (traditionally bullish).
Instead of classifying consolidation patterns as bullish or bearish, I recommend classifying them as simply consolidation patterns, and then playing the breakout in either direction in an attempt to capture a potential quick profit once price breaks either the upper or lower consolidation trend line (and placing a close stop in the event of a trap, which happened with the false breakdown late October).
In this example, BA broke the upper trend line at the $57 per share level as volume and momentum surged to new (swing) highs, confirming the breakout and setting up a quick long trade for those who saw this in real time.
There still may be an opportunity to buy a pullback—should one occur—to the $57/$58 level, though any move under $54 per share (50-day EMA and trend lines) clearly would invalidate this as a horrendous bull trap. Be careful if today closes as a doji (indecision/reversal) candle so far above the 20-day EMA—that’s just asking for mean reversion short term.
Otherwise, upper targets include the price projection target (height of the pattern added to the breakout zone), which is $52 - $38 = $14.
If we add $14 to the $67 breakout, then we have a possible classic chart pattern target of $71. There’s major overhead resistance to achieve that target, however.
Otherwise, let’s look to the weekly chart for other possible overhead targets and resistance levels.
We can see that the upper resistance level at the $56 price came from the 38.2% Fibonacci retracement. Once price solidly broke above this boundary, it set up an open-air play to the 50% level at $65, which is now just $3.50 away. It is an obvious resistance level to watch.
The $65 level aligns with a prior price swing high (resistance level) in July 2008, so we have a Fibonacci and a prior price swing high confluence resistance level at $65.
Should price break that level, the 200-week simple moving average rests at $68.00 per share.
So I’m not sure the pure pattern target at $71.00 comes into play easily, or without pullbacks/retracement should that level be reached.
Even if you’re not trading it, this is an interesting pattern to watch.
By Corey Rosenbloom of AfraidToTrade.com