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Will Boeing Land a Mega Deal With China?

Bret Kenwell

Boeing (NYSE: BA ) has been going through some turbulence lately. Issues with its 737 MAX led to a global grounding of the aircraft. Worse, Boeing’s best-selling aircraft saw its orders completely dry up, leaving Boeing stock floundering amid a market correction.

This Is the Quickest Way for Boeing Stock to Reach New Heights

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However, many investors realize that the issue can be fixed. While it’s a short-term bump, it won’t hurt Boeing’s long-term trajectory. Case in point? The aircraft maker is in talks with Chinese airlines for a jet deal that is valued in the tens of billions.

The Deal

According to reports , Boeing and Chinese airlines are in discussion for about 100 new 787 Dreamliner and 777X jets. Specifically, the two sides are in discussions for Boeing’s newest long-range jet, which is the 777-9. The latter is also Boeing’s most expensive, ringing in at $442.2 million before discounts.

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That said, there are some complications.

The airlines are waiting for guidance from the Chinese government, as the U.S. and China remain locked in an ongoing trade war. While the discussions between Chinese airlines and Boeing may look like a positive for the trade war, that’s not so much the case. The deal is not imminent and while it seems unlikely that it will fall apart unless the trade situation deteriorates immensely, it could certainly be on hold for a while.

The trade war is inflicting pain on both sides. U.S. farmers are being compensated, China’s economy is seeing some waves and how many retailers did we hear from regarding the trade war? PVH Corp (NYSE: PVH ), Home Depot (NYSE: HD ), Apple (NASDAQ: AAPL ) and Costco Wholesale (NASDAQ: COST ) are just a few that come to mind.

A delayed deal for Boeing may not result in the same impact retailers feel. But make no mistake, dragging out this deal doesn’t help. At the end of the day, China needs aircraft and is almost a decade away from its own production. That leaves Boeing and Airbus (OTCMKTS: EADSY ). Before discounts are taken into consideration, the deal is said to be north of $30 billion. Boeing wants to land it — of course — and Chinese airlines need it. But until the trade-war tensions ease, it may not come to fruition for a bit.

Trading Boeing Stock Price


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Eventually though, the deal should go through and Boeing will go back to what it does best: generating massive cash flow. If it also clears its 737 MAX issues, investors will have two sighs of relief and even more reason to back the company. Will that cause Boeing stock to rally? Most likely. But it still has some short-term issues.

On the chart above, notice how $360 buoyed the name for a while (orange arrow). At the same time though, notice how BA stock was not able to push through its 10-week moving average. The same goes for its 50- day moving average, which isn’t shown on this weekly chart.

Eventually, $360 — which was prior range resistance — gave way and is again acting as is resistance. So are the 50-week and 200-day moving averages. With prior range resistance no longer acting as support, we have to put prior range support down near $320 back on the table.

That doesn’t mean Boeing stock will fall that far necessarily. But if the markets begin to selloff or BA stock slips on negative headlines, this area will be on watch. Over $360 negates a lot of the negativity and puts a move back to $400 on the table.

I think eventually Boeing stock will get back to $400 and eventually back to that prior high near $443. Maybe that comes on the back of a 737 MAX fix. Perhaps a mega deal with Chinese airlines helps drive there. More than likely, it will need both catalysts. That said, a flush lower may still be in the cards before BA stock gets there.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell . As of this writing, Kenwell was long AAPL.

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