Playing Short Term Defense

• Posted by Greg Harmon
• on August 2nd, 2016

Coming into the week it looked like the S&P 500 needed a pause or pullback after a long run higher as was detailed here. And it did not take long for a pullback to start. The week opened at the high and has traded lower since. So what to do in the short term as this splays out? Stick with your process and plan, honor your stops and play defense. Defense stocks that is.

Defense stocks have lit it up for the entire year. And look at what is green Tuesday as the markets pullback: Lockheed Martin ($LMT), Northrup Grumman ($NOC) and Raytheon ($RTN) to name a few. Raytheon may have the prettiest looking chart. A strong steady uptrend using the 50 day SMA as support. But Northrup Grumman may be the best short term opportunity.

The chart above shows the stock trending higher since a low in January. It consolidated in July and started to pullback last week. Yesterday it touched that rising trend support and bounced. Tuesday it s following through to the upside. The momentum indicators are also turning higher. The RSI is bouncing back up through the mid line off of the 40 level and the MACD is leveling. With a stop around 215 this stock can be traded to the upside looking for 225 or higher on the next leg.

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