High-flyer Boeing just hit an air pocket, closing out last week with its worst weekly losses since March, on worries over an escalating trade war with China.
Newton Advisors technical analyst Mark Newton is urging caution on the Dow leader.
“Boeing is unattractive in the short run,” Newton said Friday on CNBC’s “Trading Nation.” “It looks like further weakness is going to happen not only for Boeing but a lot of the stocks in the aerospace and defense sector in the short run.”
Boeing’s losses over the last week could mark the beginning of a short-term correction for the stock, says Newton. He anticipates further downside over the next four to six weeks with a technical pullback to $336 possible. A decline to that level would represent a 10 percent drop from its 52-week high set on June 7, putting the stock in correction territory.
The shares lost another 0.6 percent on Monday as trading began for this week.
“It’s also gotten the most overbought that we’ve seen really over the last 30 years, and I think that’s a concern,” said Newton. “Whenever you see RSI, or the relative strength index, above 75 which we’ve seen now on six occasions since the mid-80s, the stock on four of those six occasions, has been down 50 percent or more in the three to four years to come.”
Boeing’s RSI, a measure of overbought conditions, spiked as high as 91 in January and 75 in February. After last week’s sell-off, it has an RSI of around 50.
Investor optimism over Boeing earnings has created difficult bars for it to clear in coming quarterly reports, according to Mike Binger, senior portfolio manager at Gradient Investments.
“Consensus expectations are going to be met but it’s going to be hard for them to smash those consensus expectations anymore,” Binger said on Friday’s “Trading Nation. “Boeing is a cyclical stock, and I’d worry … if those earnings peak in 2019 or 2020.”
High expectations and a massive year-to-date rally have made for expensive valuations, says Binger. The stock trades at nearly 23 times forward earnings, compared with the S&P 500‘s 16.6 multiple.
“With that, I think you can find a better entry point and wait on coming back into this stock,” said Binger.
Boeing is up 21 percent for the year, putting it neck-and-neck with Nike as the best performer on the Dow.