One defense stock has fallen so far it’s attractive for a short-term bounce and longer-term, Jay Woods says
The recent move in Lockheed Martin ( LMT ) was a classic “buy the rumor, sell the news” story. The initial attack on Iran started on Saturday February 28 and the peak in the stock was literally the first trading day after the conflict started, Monday, March 2. Since then, shares have traded lower by over 28% and are now nearing key technical support levels that make the stock look very interesting for both a short-term bounce as well as a potential longer-term entry point. Fundamentally, there is talk of a supply shortage and a need to bolster military supplies and do so quickly. Defense spending may be a hot button election issue, but it tends to be one that both sides of the aisle rarely neglect. While a basket of stocks in thegroup is never a bad idea for diversification — you can use the iShares U.S. Aerospace & Defense ETF ( ITA ) to achieve that goal — Lockheed Martin is one stock in this sector that is providing clear strategic areas to trade now. The Setup On the one-year daily chart we see a classic Technical Analysis 101 pattern. It is the full life cycle of a trade. Consolidation, a breakout, a rally, nice topping and reversal pattern followed by a targeted sell-off. From that head-and-shoulders topping formation, we had downside targets that were $90 below the $600 neckline. That target of $510 was achieved, stopping right at a major consolidation area where prior resistance is now acting as support. This polarity is what we like to see when a major trend changes and then comes back to test its former key levels. What to Watch Now We see opportunity. While I prefer my stocks above the 200-day moving average, the risk/reward is favorable to nibble at this $500-$515 area. Why nibble and not go all-in? Because there may be a better opportunity if this level fails to hold. I wouldn’t want to be stopped out on a break below $500. Instead, let’s look to cost average in as it nears its longer-term uptrend and bigger support pockets as seen on a 5-year weekly chart. When we back this chart out to a 5-year weekly basis, we confirm our support areas and see further potential downside risk. The $485 area coincides with the 200-week moving average as well as our uptrend on the one-year daily chart. Momentum This is also a critical portion of the buying thesis. On both time frames we have oversold conditions. While it doesn’t mean a turnaround is inevitable, it’s getting closer. On the daily we have a bullish divergence in RSI and believe price will confirm that momentum shift. On the weekly chart we are the most oversold since 2025. However, if we use 2025 as the guide one can see that oversold doesn’t mean a rally is imminent. What we will see is that a low is being hammered out. This demonstrates the likelihood that the risk to the downside is more limited. The Trade Buy a tranche at current levels and wait. If the stock rallies then buy more on a break above the 200-day. If this is the low, then ride the trade on a rally to the $550 level as it fills the gap and hits its first resistance level. If the sector returns to its leadership role, then the rally should continue to $585 and its longer-term downtrend. If price can’t hold $500 we want to cost average in at the $485 level. There is strong support for a longer-term entry with similar upside targets. If it continues its decline, patience is a virtue and consider this a longer-term hold. There is major support in the mid-$400s and a consistent and steady uptrend going back to 2012. This checks multiple boxes — a potential setup for a quick short-term rally from an oversold condition as well as a great longer-term hold. Recent activity has given investors a nice entry point to either trade or just add this industrial and defense powerhouse to one’s portfolio. — Jay Woods, CMT with Chase Games Disclosures – none. DISCLOSURES: All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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