We published our last public update on Boeing (BA) and the aerospace industry on March 20th: "Boeing's Nosedive: From Leading The Dow To Asking For A Bailout (Video)." We were pretty adamant that it was a "must-hold" low or BA could go into an unrecoverable flat spin - the same flat spin responsible for the death of Lt. Nick Bradshaw. In the first line of our last article, we said, "It is time to go full flaps and put the gear down if BA is going to hold as a fourth wave!" Not only did Boeing hold, it executed a textbook "touch-and-go" maneuver, soaring back up 109%!
We followed the sub-wave path and had our subscribers ready for a consolidation. After getting a corrective pullback to a perfect 61.8% retrace on May 14, we were looking for a swing move up again. BA climbed another 99% for a perfect measured move! Since then, it has been consolidating correctively again, allowing for yet another swing attempt toward the 280 region. Whether this would count better as a 5th up from the March low or the C-wave of a 3rd is a little ambiguous, but as always, the smaller degree sub-waves will give us clues along the way.
But we did not only call the bottom on BA in 2020, we also correctly identified the top in 2019. On April 30, 2019, we published "Stall Warning," and in November published "Holding Pattern," showing the March 2019 high for Boeing as a major top that was not likely to be breached before seeing significantly lower prices.
In the following video, we again go over the Elliott Wave patterns we see on the iShares U.S. Aerospace & Defense ETF (BATS:ITA) as well as its major components. We examine how they have evolved off the significant low we pointed out. And we project what to expect in the months and years ahead. Discussing technical analysis in text can get a bit tedious, so we highly suggest you watch the short video where we can point to specific things on the chart.
As discussed in the above video, the vast majority of components in the aerospace sector and indeed ITA itself count the March low as a large-degree fourth wave, and the movement off that low so far is just the start of the larger-degree fifth waves that should continue to carry prices higher over the next several years.
The ITA only got three waves up from the March low so far as an ABC pattern; in a vacuum, this pattern is not in and of itself bullish. Quite the opposite, in fact, we look for ABC patterns as corrective consolidations, either retraces or bounces, before continuation of the prior move. So, how is it that we are seeing this bullishly? The answer is two-fold: context and an EW pattern called an Ending Diagonal.
First, context, as mentioned above, the ITA and most names count as a larger-degree fourth wave completed into the March lows as support. Elliott Wave Theory provides several guidelines for where fourth waves should target and hold support. While the drop in February and March was violent, it came into the ideal target support region for all of those guidelines. Not only did it hold support in the region of the prior wave (4) inside the Primary 2, it came back to the red 100% Fib extension of P.2, it was a 50% retrace of the P.3, and it also held in the region of the wave twos inside the extended (5)th. Additionally, though the "(B.)" wave of our fourth made a higher high; this is called an Expanded Flat, and it implies that the underlying bullish trend that began at the 2009 low is still strong. This confluence of context allows us to remain confident in the larger Primary wave 5 despite the initial ABC structure.
Second, the Ending Diagonal. A diagonal is an EW pattern consisting of five subwaves, but unlike an "impulse," each of these subwaves is an ABC move. The "Ending" part of the name just means that it is the final move in a larger pattern. The initial move off 2009 for ITA's Primary wave 1 was actually a Diagonal too, a Leading Diagonal. Another characteristic of diagonals is that the waves two and four are often deeper and/or wider than in a standard impulse. So, while ITA has already retraced more than 38.2% of the ABC up from March, it is possible that this is only the A wave in a wider and deeper wave (2). The B wave should bounce more toward the 180s, and there is a chance that bounce turns into the start of (3). Since the larger fifth waves for most of these names are targeting ultimate highs well beyond those seen in early 2020, the risk:reward is favorable for initial exposure. ITA's Primary wave 5 targets the 300s, and there is some nice Fib confluence ~370.
Moving on to the individual names, BA did drop far deeper than ideal for the same-degree fourth, but allows for a fourth at a larger degree to have completed. It clearly has the same ABC move up, but allows for a slightly different interpretation as just the B wave retrace inside the (3) of a larger Leading Diagonal off March. Even a "nominal" higher high in BA over the 2019 top to the next Fib extension easily puts BA at 711. While there is a near-term risk of a deeper retrace to 120s, current immediate support is 160-157.
Raytheon Technologies (RTX) has potential for an even more bullish interpretation off the March low. If so, it should really hold the recent 58 low; fading below that would most likely put it in the same wave (2) of a diagonal as we discussed on ITA. Lockheed Martin (LMT) perhaps has the strongest-looking chart off the March low as an Impulse. It easily counts as the start of a third already off the 337s. It should be in just wave 1 of that third. The larger pattern is easily heading toward the 600s, and there is even some nice Fib confluence into the 700s.
Transdigm Group (TDG) also fits well within the patterns shown by other members of the squadron. Though it counts best as one degree higher for a Cycle degree 5th starting, it too has a clear three-wave up structure for wave 1 of an Ending Diagonal. The ideal support for more of a wave 2 retrace is the 328-290 region, and the 5th wave up here can easily target 1161. No, that is not a typo, that is $1161 per share.
General Dynamics (GD) also has the same three waves up so far, which can count as the wave (1) of an ED for P.5. It does look a bit more bullish off the July low so far, but the wave (1) as is was slightly smaller than ideal for an ED targeting the 300s. 268 is the minimum Fibonacci extension I would like to see hit for P.5 in GD, but 324 and 364 are more preferable. I am open to a larger wave (1) in a more complex pattern.
Teledyne Technologies (TDY), while not as convincingly bottomed in a comparable larger-degree fourth wave as the others, has a more impulsive-looking pattern off the March low similar to LMT. Ideally, the 289 low in July holds and the third targets 745. Even just a measured move targets the 574 region off that support, so the risk:reward is very favorable.
Northrop Grumman (NOC) was not as strong as the others off its March low, but it is also important to consider that it held a much higher relative low and did not even get under the December 2018 bottom. You could blame a LOT of ITA's -53% slide on BA, but others got hit hard too. While NOC's -33% was no cakewalk, it was substantially less severe. It also has a very clear three-wave retrace into the July low as support, and a measured move off that targets 387-420.
Our Thursday webinars often end up being well over an hour, and this one was no exception. I had to cut the video short for this article, but we continued to discuss more of the components of ITA. Many other names support the bullish thesis for the next several years playing out, and show their own nuanced subwave patterns. Another standout that can certainly hang with the big boys is Kratos Defense & Security (KTOS). Where most of the large caps here count large fourth waves at the March low, KTOS can count a Primary wave 2. The move off that extreme is awkward because of the massive reversal bar, but it is hitting resistance at the .618 Fibonacci extension, which is perfectly consistent with the wave (1) inside a Primary wave 3. We would love to see a dip under the 12s for the wave (2) retrace to get close to the 38.2%. The upside potential here long term is as impressive as their orange painted drones.
STOCK WAVES:Where fundamental analysis meets technical analysis for highest-probability investment opportunities!
"Join Stockwaves, it is fantastic!" (JB)
"Stockwaves is my bread and butter, and that's only catching maybe 10% of the charts they throw out! I had 7-10x+ trades with SW last year, and dozens more that were "slackers" (LOL) with "only" 3-4-5x returns. Amazing!" (Nicole)
"You should subscribe to Stock Waves for individual stocks. Zac, Garrett ... and Lyn are doing a great job. I like the service a lot." (SP500_trader)
Click here for a FREE TRIAL.
Disclosure: I am/we are long BA, GD, LMT, NOC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Here is the original post:
Boeing And Aerospace: The Art Of Touch-And-Go (Video) - Seeking Alpha
