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BA Flight to Growth Strategy

DEVELOPED BY

MICHAŁ ZAREMBA

average rating is 4.1 out of 5

Each year, the shares of the aerospace giant The Boeing Company (BA) statistically see an increase from the end of October to the beginning of January. What might drive this trend? Increased air traffic during the holiday season, which reminds investors of the company? Or perhaps government purchases at the end of the year cause Boeing's shares to gain strength?

Inspirations


Before we begin discussing the seasonal pattern, it's worth noting that since 2020, Boeing has been losing revenue and income, facing significant image problems along with endless waves of negative information regarding production process negligence, issues with the 737 Max series, and major personnel reshuffles (including the departure of the CEO).


The company's business structure is as follows:


Due to problems, the company experienced a more than 65% drop in market capitalization from 2019 to 10/2024 when I am writing these words.


We are therefore very curious whether, despite the negative sentiment and results the company is experiencing, the observed regular increase in stock value at the end of the year will also manifest in 2024 and subsequent years.


The observed pattern may be related to increased capital expenditures by airlines before the end of the year, as well as by governments on defense. As one of the key suppliers of military equipment, Boeing may also see larger orders for aircraft and weapon systems, which positively influences investors' outlook on the company.


So far, the pattern has appeared regardless of current financial results, suggesting that seasonality plays a significant role here. Let's analyze this together.


Key Components


  • Exploration of the end-of-year season as very favorable for valuing The Boeing Company's stock.

  • The strategy is based on pure dates. In the backtest, we completely ignore trends, news, company valuation, and the overall market situation.

Entry Rules


Entry occurs on October 27th or the next business day, with a market order at the end of the day.



Exit Rules


We close the position on January 7th or the next business day, no later than 50 business days from the entry point.




Backtest 1, Fixed $ Money Management


In this backtest, we consistently invest the same amount of $100k, testing over a period of 36 years (1987-2023).


Equity chart for this test:



Backtest 2, % Money Management


In this backtest, we invest in the strategy with a constant 100% of the current capital (with an initial capital of $100k). This means that as the capital increases or decreases, the value of the position changes proportionally. The rest of the parameters remain unchanged.


The equity chart for this test looks as follows:


The maximum drawdown was 14.2%, however, the open drawdown shown below the chart was about 27%. The average annual return on investment was nearly 10%.


Additional Information on Strategy


SL & TP


The strategy does not use typical stop loss and take profit, although they can potentially be introduced. According to our tests, for most stock strategies, these settings worsen results (read why).


The protection against the strong impact of a potential price change of a single stock is the diversification of stocks and strategies within the portfolio.


Market Regime


Despite its simple rules, the strategy performed well in various periods, both Bull and Bear Markets, although in our opinion, it is safest to use it during a Bull Market. You can read more about the market regime here.


Trading Costs


The backtests included trading costs and slippage typical for the given strategy, which occurred on a real account in our tests for the broker Alpaca. With a diversified stock portfolio and strategy, transaction costs can determine your profit or loss, so take the time to thoroughly test and choose a broker.


Robustness


Tests of other entry and exit days during this period yield stable similar results. Personally, we prefer seasonal strategies with a 2-3 month horizon, so this strategy meets our preferences.


Due to its nature, a seasonal strategy will not have a large number of transactions. One can also expect some evolution of the pattern in the coming years.


Recommended Instruments


The primary instrument is BA.


Pattern Day Trader


The strategy is also successfully applicable to smaller accounts. The holding period is approximately 50 days, which does not meet the PDT requirement.


Correlation with Other Strategies


The strategy aligns with stock behavior patterns associated with the end-of-year period. Therefore, it may be correlated with other strategies trading during the same period.


Summary & Strengths and Weaknesses of the Strategy


The seasonal strategy for Boeing stocks is based on solid data, tested over 36 years, which gives it credibility in various market conditions compared to other seasonal strategies.


A decent success rate of 72% and an average return on investment reaching nearly 10% are its key strengths. Additionally, the capital exposure, slightly over 19%, and a relatively low historical drawdown of 14% may indicate the stability of the pattern.


On the other hand, it's important to note that holding a position in BA required enduring an open drawdown of 27% in 2009. Also, the current sentiment towards the company is not positive, which can paradoxically be an argument FOR those using a contrarian approach to trading.


Considering the seasonal nature of the strategy, it is worth applying it within a broadly diversified portfolio of instruments and strategies. Seasonal patterns, while effective, can evolve, so regular analysis and strategy adjustments are key to long-term success.





What you receive in the package for this strategy:

  • A .SQX file ready to be applied on the Algocloud and StrategyQuant platforms.

  • Pseudocode that describes all the rules in an easy-to-understand way.


If you need the code for this strategy in the following formats: Tradestation (easylanguage), Multicharts, MT4, or MT5 (MQL), please contact us on this topic.

Disclaimer

 

The results obtained from historical data do not guarantee future outcomes. The effectiveness of a strategy can change over time. Backtesting is a tool that allows for the analysis and evaluation of an investment strategy based on historical data. Various factors, such as market changes or economic conditions, can influence the effectiveness of a strategy over time.

Investing always involves risk. This material is not investment advice. We share our experience and algorithms for educational purposes. We make efforts to ensure that our algorithms are error-free, but neither we nor the tools we use guarantee the absence of technical issues. Any decisions to use a particular strategy are made at your own risk and should be preceded by careful understanding and verification. You should always carefully consider your investment goals and risk tolerance before making investment decisions.

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