Boeing's slide causes large divergence amongst US indices

Summary:

  • Boeing opens lower by more than 10%

  • Drops cause large divergence between S&P500 and Dow Jones

  • S&P500 revisits swing level around 2764

 

Shares in Boeing have begun today firmly lower with a large gap to the downside, after several airlines have grounded one of their planes following a fatal crash on Sunday. The disaster involved an Ethiopian airlines plane and has seen China’s airline regulator suspend all Boeing 787 max 8 domestic flights. This is the second tragic crash for this model of plane and has unsurprisingly raised serious concerns about its safety and has led to a double-digit decline in the share price.

There’s been a large gap lower in Boeing’s stock following the tragic crash, with the market trading lower by more than 10% on the day. Source: xStation  

 

An interesting by-product of this slide is a large divergence opening up between the S&P500 (US500 on xStation) and Dow Jones (US30). This is caused by the former being weighted on market-cap whereas the latter is based on price. This has resulted in Boeing having a weighting of more than 11% in the Dow, almost twice as much as the next largest component, where as it only has a weighting of less than 1% in the S&P500. This has caused the divergence in the two benchmarks, with the current level the highest seen on any given day since January 2009!

 

The S&P500 is outperforming the Dow Jones today by the most in over 10 years, largely due to how the 2 benchmarks weight Boeing stock. Source: Bloomberg

 

The S&P500 is firmly higher on the day and looking to build on the gains seen at the back end of last week as the market recovered well into Friday’s close after trading heavily lower. Price is now back around the prior support level where the market broken down from and this could be seen as potential resistance. The region around 2764 could now be seen as a key line in the sand, with a rejection here keeping the market under pressure. Alternatively, if the bulls can make a clean break back above 2764 then the worst of the sell-off could be seen to be over and they may then be able to have another tilt at the 2820 region. This region also coincides with the 38.2-41.4% Fib retracement.

The US500 has extended the recovery which began on Friday and the market is now probing potentially key resistance around 2764. Source: xStation

 

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