Exploring Opportunities in Defense Stocks
- Posted by Greg Harmon
- on March 6th, 2012
Coming into Tuesday several Defense stock charts were setting up well. But then the broad market tripped on the curb and took a header. Oddly that shook up the mix in this sector, breaking the correlation. Take a look.
Boeing, $BA, had been leaking a bit and is not a defense pure play but it really took it on the chin Tuesday falling back to previous support at 72.45. The Relative Strength Index (RSI) is near overbought and the price is outside of the Bollinger bands (BB). This would be a logical place for it to stop, at least for a while to climb back within those BB’s. But the Moving Average Convergence Divergence (MACD) indicator is growing more negative and the fall was on strong volume. With all the volume at price history at 71 and the 100 day Simple Moving Average (SMA) at 70.54 a further drop is certainly possible.
Lockheed Martin, $LMT
Lockheed Martin, $LMT, fared a bit better, but still printed an inverted hammer on the day on support at 87.65. The RSI is bullish on this name, but falling now and the MACD did turn negative today, both supporting more downside. But this chart is a lot more enticing than $BA. Support lower at 85.25 would be seen by many as a great entry point.
Northrop Grumman, $NOC
Northrop Grumman, $NOC, on the extreme looks relatively unblemished by the market move lower as it consolidates over the rising 50 day SMA. The RSI is bullish and moving sideways while the MACD is flat. What is most telling is that it had a large volume down day but you cannot tell it was down unless you look closely. They tried to hammer it and it did not move. The set up on this name remains bullish with a break over 61 looking for a move higher to 64.
So which stock is right? Is Boeing leading the pack lower or is Northrop Grumman showing that Defense is strong? Wednesday could give a clue. And now you have a plan as to which ones to watch for a return to the previous correlation.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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