Dow stock Boeing plunged 50 percent 5 out of the last 6 times it reached this level

Boeing has been on fire the last year, surging more than 70 percent. According to one technical analyst, the monster gain could be putting the stock in quite the predicament ahead of earnings Wednesday morning.

At current levels, Boeing shares are extremely overbought, says Mark Newton, president of Newton Advisors. Dating back to the mid-1980s, Newton noted that each time Boeing shares have become this overbought, as measured by the relative strength index, the stock has gone sideways or south.

Specifically, when Boeing’s monthly relative strength index (RSI) has reached 75 or higher, suggesting far too many buyers are piling into the name, the stock has suffered in the subsequent years. Newton told CNBC’s “Trading Nation” on Tuesday that in five of the prior six times this has occurred, Boeing has lost 50 percent in the following two to three years. For this reason, he’d avoid the stock, given its current risk/reward setup. The RSI gauge is now just above 75.

For example, when the relative strength index surged in 1986, Boeing lost nearly 50 percent into late 1987. Then, when Boeing saw a similar overbought condition in 1990, the stock lost 50 percent in the following two years. A similar pattern played out in 1996, 2000 and 2006. In 2013, when Boeing approached overbought conditions, the stock traded “sideways” for four years, Newton pointed out.

“It’s tough to get too enthralled, given that there’s a neutral sideways trend over the last six months, part of a very, very overbought trend. For most longer-term investors, it’s fine unless you get under $311. That’s really the key line in the sand. If it gets under that, then it’s likely that it’s going to start a more precipitous decline,” he said on Thursday, adding that the stock’s turbulence in light of tariff talk adds to its unappealing position.

Indeed, Boeing shares have come under pressure in recent months amid trade tensions between the U.S. and China.

Despite its big run and some of the risks surrounding Boeing shares, the options market is not pricing in an exorbitant amount of risk ahead of earnings, according to Stacey Gilbert, head of derivative strategy at Susquehanna. Its implied move on earnings is roughly 4 percent, Gilbert told “Trading Nation” on Tuesday.

“When you compare this over the last eight quarters, Boeing on average has moved about 4 percent. But over the last 4 quarters, it’s been closer to a 5.5 percent move. So there really is not this excess volatility, or this excess risk, being priced in to the options market,” she said.

Boeing rose 1.5 percent on Tuesday, closing at $358.27 per share. Analysts, on average, expect earnings of $3.25 per share on Wednesday.

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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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