Little attention has been paid to the companies who make their profits on the wings that fly overhead. There couldn’t be a better time to check in and see how the industry and its key American component Boeing are doing. Here’s what we’ll take a look at:

· Brief review of the Aerospace and airline industry
· Technical thoughts on Boeing (BA:NYSE)
· Conclusive insight for investors

Aero Industry

In the Aerospace and airline industry, the current economic environment for the global players couldn’t be more favorable. We’ve seen aeroplane orders reach record heights over the past three years. In fact, delivery schedules are at full capacity until at least 2010.

Although foreign companies such as aerospace group EADS and engine manufacturer Rolls Royce has been under significant pressure, the American company Boeing stands to be quite healthy for the foreseeable future.

To understand the reason why industry growth has been more favorable to the United States, it is necessary to look at the underlying currency market. The U.S. dollar has been falling in dramatic fashion against both the U.K. Sterling and the European Euro.

Supply and demand are affected greatly by the purchasing power of the local currency. When a country, such as the United States’ dollar, decline in value, foreign products and services become more expensive. Hence, the reason as to why exports here in the U.S. have been performing better than that of overseas exporting markets.

It is important to note that economic conditions can turn on a dime. The airline industry is fragile and struggles everyday with regards to profitability. The problem does not exist only within the U.S., but in other economies as well.

For example, the global debt in this particular business totals $200 billion. Net margins will come in at a meager 2% this year, according to Credit Suisse. With the banking industry in a bind, global economic growth slowing, and the price of oil pushing toward $100 per barrel, it is going to be quite difficult to make the balance sheet look good.

However, in spite of all this negative data, Boeing has held ground. In the past week alone, the company received a $2.3 billion order from Dublin-based airplane leasing company AWAS for 31 of the single-aisle, next-generation 737-800s.

Currently, 109 customers have placed orders for more than 4,300 next-generation 737s. Unfilled orders exceed 1,800 airplanes, worth a staggering $130 billion.

Boeing Stock’s Technical Situation

If one were to take a look at Boeing’s stock over the past 30 years, it would appear that the uptrend is on a path to Pluto – with the only minor bumps and bruises occurring between 1997 through the end of 2002.

The stock has split seven times over this time period with the latest one occurring sometime in 1997. At the market bottom in late 2002, Boeing began to turnaround with a vengeance. Shares rallied from around $25 in 2003 before peaking in July of this year at $107.83

Recent activity suggests that the risk/reward ratio is not as favorable as my research suggests. I noticed a reversal pattern known as the “double top” on the one-year weekly chart. This pattern is best characterized by two attempts to break a price barrier unsuccessfully. In this case, I am referring to the $107.83 price mentioned above.

On a longer-term, quarterly chart, another very important reversal pattern can be seen. It is known as a bearish engulfing pattern and is best described as two candlestick bodies of the opposing color, one being bullish and the other bearish, in which the second body is larger and “engulfs” the previous body. Unfortunately for the longs, the selloff was on high volume – another warning sign of things to come.

These two time horizons together represent a bearish outlook for the months, perhaps quarters ahead and indicate that all of Boeings positive news has already been factored into the price of the stock. With that said, I believe institutional investors are already taking profits off the table, which will only push the stock lower.

How low can Boeing go?

Well, weak support can be found near $79 per share. Strong support isn’t seen until $67.50 when the stock initially bumped off this price in 2000, and then finally broke through this barrier in 2005.

How to play the setup
So, you could play this opportunity in many ways, either you can short the industry or Boeing stock itself or purchase put options and pocket gains on the company’s initial collapse to the $79 level.

Good investing,

Stephen Oakes
Editor, Black Sheep Trader & Volume Spike Alert