Boeing (BA): How to Successfully Trade a Falling Knife

Boeing was the top stock to avoid in early March 2019.

The stock had just fallen more than 35 points in two days on news that an Ethiopian Airlines flight crashed, sadly leaving no survivors. That came just comes after another deadly crash involving the same model in Indonesia, which also left no survivors after five months ago.

“Boeing is deeply saddened to learn of the passing of the passengers and crew on Ethiopian Airlines Flight 302, a 737 MAX 8 airplane. We extend our heartfelt sympathies to the families and loved ones of the passengers and crew on board and stand ready to support the Ethiopian Airlines team. A Boeing technical team will be travelling to the crash site to provide technical assistance under the direction of the Ethiopia Accident Investigation Bureau and U.S. National Transportation Safety Board,” read a recent press release.

The plane used for both was a 737 MAX 8 jet, one of the company’s top-selling planes.  

Such horrific incidents only raise a lot of questions about a plan that generated 60% of the company’s $101.1 billion in 2018 revenue.  

Especially after countries and carriers grounded their fleets of that plane.  

Ethiopian Airlines grounded all of its 737 Max 8 planes. China and Indonesia ordered the grounding of all 737 Max planes. Cayman Airways grounded two new 737 Max jets.

Given the circumstances, you can see why most investors avoided the stock.


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When to Catch a Falling Knife

However, there are those that went bottom-fishing, hoping that the 30-point decline was the worst of it. Unfortunately, for all involved that’s not the case.

In fact, from an investment standpoint, the stock now resembles a falling knife. As we all know, it’s never a good idea to even attempt to catch a knife as it plunges to the floor. Much like an actual knife, a falling stock can cut you badly, too.

So, it’s best just to avoid it, immediate-term.

At the same time, we still want to watch the stock for potential entry points with patience. What we need to see is agreement among our four key indicators, for one.  That includes incredibly oversold conditions on Bollinger Bands (2, 20), MACD, relative strength (RSI) and Williams’ %R. However, in the case of a falling knife, we need to wait for more than just agreement among each of the indicators.

We need to wait to see where support will come into play, and whether or not that line of support will hold. We also need to wait to see if we get a sustainable new uptrend prior to buying.

Buy too early, and you could easily get cut by this falling knife.

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