U.S. durable orders rise 1.9%:- First gain in 2005 led by airplanes, autos, computers

By Rex Nutting, MarketWatch -- Last Update: 8:54 AM ET May 25, 2005

After I read this story, I turned to the full report from U.S. Census Bureau (Manufacturing, Mining & Construction Statistics): April 2005--------------- Released 8:30 A.M. EDT May 25, 2005. Usually there is something I spot that requires further investigation.

Item of note from report:
Defense new orders for capital goods in April decreased $1.1 billion or 14.5 percent to $6.7 billion.

Now I think that maybe Boeing (NYSE: BA) might be ready for a Sell Recommendation. I need to look further. Before I do, recall that Boeing is mostly a manufacturer of Weapons of Mass Destruction, which at about 60 pct of BA's revenues is more important to the company than its much-ballyhooed commercial aircraft division.

So I look at BA vs the Dow Jones Aerospace & Defense Industry stocks index. Twice in the past year, BA seems to get ahead of the group, probably when the 787 sales numbers are being hyped.

I see the RSI and MACD technical indicators are getting close to the Cara Distribution Zone.

Then I recall this is the Week of the Paris Air Show, which is the world's largest industry sales exhibition, and a time when Boeing could expect to be over-hyped.

So I want to have another look at the Value Line study on BA. I keep a hard copy of archived Value Line reports on all Dow Jones Industrial component companies.

The last report by Morton Siegel was published on March 25. This analyst notes the competing philosophies between Airbus, the French-based European manufacturer and Boeing from the U.S. Boeing strategy is to focus on smaller commercial aircraft than the regional center focused larger A380 type planes of Airbus Industrie. I suppose that Paris Airshow orders might give an indication as to comparative success.

But, I also note that Siegel believes that BA at $62.59 (high yesterday) is at a long-term cycle high and discounts future price possibilities going out to 2008-2010. That may be debatable, but Value Line lowered its technical rating on BA to a 5 (lowest possible) on the date of this report (3/25). That was when BA was $56.77, which is over 10 pct lower than yesterday's price. So, clearly, Value Line believe BA is over-priced in the market.

I tend to agree. The timing of the Paris Show plus the technical charts added to my analysis on BA. I think the stock should be sold here. At least, if you hold it and want to continue holding it, write some calls in order to earn some option premium income that can be used to lower your cost base. If the stock gets called from you at even higher prices, maybe it is the right time for even you to sell.

Let the market come to you when trading. It is always a better tactic than chasing stocks.

P.S. Bob wants to know if a Sell Recommendation could be interpreted as a recomendation to buy puts or sell short.

Actually what I wrote in this article is BA is in or close to the Cara Distribution Zone. I'll do another article to show the timing points within the Distribution Zone that I believe are good ones to buy puts or calls.

Long-time readers know that my favored option stategy is to (1) write puts (in order to accumulate some of the ones I like by having them "put" to me if the price drops further than I was hoping for or anticipating, and to take the premium income from the others (after closing early at a profit, or letting expire worthless, which locks in 100 pct of profit), and then (2) write calls in order to take in some premium in stocks I wish to hold as part of a long-term core position in the portfolio, or have these stocks "called" from me at what I believe to be ridiculously high prices.

The reason for writing is that (i) mostly stocks track sideways, so I want the time premium to work for me as opposed to against me, (ii) only occasionally do stocks get very over-bought (suggesting that buying a put would be appropriate) or over-sold (suggesting buying a call would be appropriate).

These times (for buying puts and calls) are usually right after a price spike up or down, but there are other factors that must go into that analysis, because the risks are much higher. If (for a single case study) the event that caused the spike is exogenous e.g., the capture of Saddam, or the Twin Towers catastrophe, then the decision is much simpler.

But, I'm glad the question did not involve complex option strategies, because that's where you'll have to go to an expert for discussion/education. I don't have the time to do anything more than comment on the simplest option strategies.