Boeing stock formed a big bearish gap at the beginning of March as its 737 Max operated by Ethiopian Airlines crashed in Addis Ababa. This the second deadly accident involving this type of aircraft in 6 months. It was reported that the US Transportation Department’s Inspector General was examining the plane’s design certification before the second crash. There are other pieces of evidence as well. All points at the fact that the company may have made a serious misstep and that 737 Max has serious safety flaws.
Why is it important?
While a single accident may be attributed to a mere chance, two accidents look like a pattern. Both tragedies took place soon after a takeoff. Investigations are being held to find out the reasons. The truth is that no one wants Boeing to experience such problems, and this matter clearly goes beyond financial markets.
As for the larger economic consequences, you should know that China contemplated buying Boeing planes as a part of the trade deal with the United States that’s currently under negotiations. The success of talks is vital for global economic growth and risk sentiment. So, we can only hope that this case won’t make the things between the world’s two biggest economies even more difficult.
The dismal event has already started to hurt the company’s business. China and Indonesia have grounded all of the 737 planes which used to be in operation. According to the reports, so did Ethiopia. European regulators expressed their concerns about what has happened.
It’s necessary to point out that the updated 737 model is a best-seller. The company has already delivered 350 planes, and the overall number of orders exceeds 5,000. The risk is that it will now start losing orders. There can be no doubts that it won’t be easy for Boeing to get through this crisis and that it will suffer both in terms of revenue and reputation. Add the fact that the stock is still not far from the record highs, and the conclusion will be that it’s probably not the time to buy Boeing for the long term just yet.
Weekly timeframe looks bearish: there are a bearish engulfing pattern, an unclosed bearish gap and a candlestick with a long upper wick. The stock will get some support if the Federal Reserve is dovish at its meeting on Wednesday, although the recoveries will meet resistance at $400.00. The level to watch on the downside is the 50-week MA in the 357.00 area.
Notice that Boeing accounts for more than 10% of the Dow Jones Industrial Average. As a result, if you trade the DJIA index, you will have to keep an eye on the progress of the Boeing issue.