Technical Analysis Lessons From Boeing's Stock Chart

In this lesson, we will learn why Boeing had a nice rally after a correction. What are the technical signs that hinted of the end of the correction and what are the signs of the start of a new short term rally?

If you have been looking at stock charts for some time, you will realize that a stock can have a sell off only to resume climbing back up out of nowhere.

This may seem perplexing for the ordinary folk but to the trained eye, the bottoming process is quite clear and this provides a trading opportunity for traders who know what to look for.

Why Did Boeing Rally Up?

Take a look at the stock chart below.

After a correction in late June 2018, BA had a nice rally up in early July 2018. We want to see why it did so. Why did it not go down? In order to answer these questions we will need to study the price action of the stock as well as some indicators.

The very first sign that Boeing was bottoming is the fact that it broke back above a downtrend line. Trend lines can be drawn to connect the highs or lows of a stock's price action. In our case, we can draw a trend line connecting the highs of the downward move.

When Boeing broke above the down trend line, it told traders that the stock's downward momentum might be slowing down. And true enough, the stock traded sideways for awhile before going up.

The stochastics indicator was also oversold. When it is oversold, it is always a good idea to check whether there is support at the area.

The presence of a support area increases the likelihood of the success of the stochastics oversold signal.

When we look at the left of the stock chart, we can see a congestion area that acted as a potential price support for the stock.

Since there is support at the area, that is why the stock did not collapse. Instead it traded sideways.

The next useful tool that we can use to gauge momentum is the MACD Histogram. The Histogram formed a valley and when the histogram contracted, this told traders that bearish momentum is slowing down.

It is like a car going downhill but the driver has slowly press on the breaks.

Soon the MACD Histogram crosses back above 0 and this gave a MACD buy signal for the stock.

Let us now take a look at the weekly chart of BA.

Boeing was in an uptrend and therefore the likelihood of it going higher is very good. Most dips and breakouts are buyable. Looking at weekly charts can often make it easier for us to see the big picture. It also helps us to see support and resistance areas clearly.

Notice how the congestion area acted as a support area.

As the stock corrected, the appearance of a doji and small body candle also told traders that bearish momentum is slowing down.

Some traders might even buy the stock when it trades above the highs of the doji as this is a valid trading strategy.

Perhaps the value of multiple time frame analysis is more evident when we look at the 60 min chart of BA. The chart above is the 60 min chart of Boeing and when we zoom into this timeframe, we can actually see a bottoming process happening very clearly in the stock.

So why did the stock correct?

A bearish cross where the 60 min 20 MA cross below the 50 MA hinted of a correction. After the appearance of a bearish cross, the stock declined for about 2 weeks.

During this time, notice how the stock stayed below its 60 min 50 MA. This is a picture of bearishness.

The stock eventually traded back above the 60 min 50 MA and this told us that the bearishness is coming to an end. Eventually, the stock had a bullish cross and this told us that the trend is changing from bearish to bullish.

Boeing then formed what we call a 60 min symmetrical triangle. The stock gap above this chart pattern and this told traders that the stock is about to begin a new 60 min uptrend. It was time to buy the stock. 

So there you have it...

Hope this lessons adds to another layer of knowledge in your technical analysis.

Charts with the Freestockcharts.com label are courtesy of Freestockcharts.com

Charts with the investing.com logo are courtesy of Investing.com powered by Trading View

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