Back in the year 2000 this stock had peaked in the low seventies. Since then it has spent 18 years trying to get back up there. Since the initial low around $14 or so the stock has been working its way through an a-b-c correction. The b leg made a new low. What you are looking at above is a c wave diagonal or wedge. It should normally break down right back to the start or even lower.
Yes we did get this one completely wrong a few hundred dollars ago. Nevertheless we cannot resist the temptation to warn that this stock is vulnerable to a pull-back (to the other side of the channel would bring the stock to $41??). Have we seen this movie before? The p/e is running north of 279X if that helps.
By the way, this looks a little like Boeing in the previous blog, both may be flying high.
The chart on the right is from last January. We repeat it just to reiterate our sentiment that this stock may have gone too far to fast. Despite that, on April the 9nth we concluded that the drop was corrective and should therefore be followed by a new high, which we recently got by a few dollars.
Trump has been inconsistent in his treatment of this company. First he complains about the costs of his two replacement Air Force Ones, but after shaving off “billions” he celebrates his first party in the hangars of this company which must have been worth a tidy sum in free publicity. Then it occurs to him that Canada might deliberately be undermining the first military apparatus of the US by producing so much aluminum ( the correct “comparative advantage” to use standard trade lingo, is cheap hydro or electricity a major vanishing input. ) Yet in order to apply his notion of the art of the deal he has to tease a little so he postpones the actual implementation, which the market had anticipated anyway, so nothing happened. Then with the help of his new found friends Larry Kudlow and Peter Navarro he wakes up to find that our Prime Minister Justin is a backstabber etc. and at the same time that China, who everyone knows is the real enabler of the Kim-Trump photo opt, is still stealing the US blind. So the tariffs go back on and now they may actually be implemented even if that has not materialized yet. In these hard to follow twist and turns one thing that must have escaped the presidents attention, despite almost daily use of one or both 747s, is that these birds are actually made for a good part of aluminum. A 25% tariff, when none will apply to Airbus, can have rather significant competitive consequences. This is what you get with one-dimensional thinking.
This was one of the best on the way up which usually implies that it will also be one of the best going down. There are a lot of air pockets and we are nowhere near normal cruising altitude.
There can be little doubt that this 5th wave is a “diagonal”. And if it is a diagonal it must be a 5th wave. The high was a couple of working days ago and reached $207+. Diagonals invariable retrace back to their base level which should be in between the two horizontal lines. Typically this move should be swift which, in practice, means in about 1/3 of the time it took to go up, about 18 months, so in about 1/2 year. This $90 drop might sound like a lot but it would only take us back 2 years out of nine. Furthermore the p/e is running above 30. See chart below for the bigger picture;
In my opinion this situation would be played best by way of an option. As an example, a Sept. 2018 put with a strike of $200 sells for about $4. If you want to have more time on your side you can take it to Jan. 2019 where a similar $200 put would go for about $6. You will probable earn a multiple of your money back! with excellent odds as the complete lack of volatility in this stock, see the narrow channel, makes the put options dirt cheap.