Boeing Co (NYSE:BA) spiked up about 1.5% higher on Thursday morning before rejecting from a descending trendline that has been holding the stock down since Feb. 10.
A descending trendline acts as a resistance level and indicates there are more sellers than buyers even though the price continues to fall.
In order for a trendline to be considered valid, the stock must touch the line on at least three occasions. After that, the more times the trendline is touched the weaker it becomes.
- Bullish traders can watch for a stock to break up from the descending trendline and, if the break happens on high volume, can indicate the downtrend is over and a rally may be on the horizon. It's possible the stock may fall down to back-test the descending trendline as support before heading higher again.
- For bearish traders “the trend is your friend” (until it’s not) and a touch and rejection of the descending trendline can offer a good short entry. A bearish trader would stop out of this type of trade if the stock broke above the trendline.
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The Boeing Chart: Under the descending trendline, Boeing may be settling into a bullish inverted head-and-shoulders pattern, with the left shoulder completed between Feb. 10 and Feb. 28, the head created between March 1 and March 30 and the right shoulder formed over the trading days that have followed. On Thursday, Boeing attempted to break up from the neckline, which is also the descending trendline holding the stock down, but failed.
- If Boeing is unable to break up from the neckline later on Thursday or on Monday, the inverted head-and-shoulders pattern will be negated and the descending trendline may continue to push the stock lower. When Boeing is eventually able to break through the trendline, a massive reversal may be in the cards.
- If the inverted head-and-shoulders pattern is recognized, the measured move is about 24%, which indicates Boeing could trade up toward the $260 area in the future.
- If the stock is able to break up from the descending trendline, it will regain the 21-day exponential moving average (EMA) as support and if Boeing is able to remain above the level for a period of time, the eight-day EMA will cross above the 21-day, which would be bullish.
- A lack of volume helped to keep Boeing from being able to break up above the trendline on Thursday, which could be due to the long weekend approaching, as traders and investors may have started the Easter holiday early. As of late morning, only about 1.9 million Boeing shares had exchanged hands compared to the 10-day average of 7.02 million.
- Boeing has resistance above at $183.77 and $196 and support below at $172.08 and $162.49.
Photo by Steve Lynes on Wikimedia
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