Global security products and services company Lockheed Martin Corporation (LMT) on Friday announced that it will furlough about 3,000 employees this week as the partial U.S. government shutdown continues. Let’s take a look at the charts and see if we can identify a profitable trade on this news.
Lawmakers in D.C. haven’t made much progress on reversing the shutdown, meaning contractors are feeling the pinch. In addition to Lockheed, Boeing (BA) and United Technologies (UTX) last week announced they will furlough employees, and other companies are likely to follow suit. Investors are justifiably wondering how “temporary” this shutdown will be.
Much like the broader U.S. stock market, LMT stock has seen some pressure since mid-September, but thus far the damage has been contained. Yes, the stock rightly displayed some relative underperformance during the second half of last week, but so far LMT stock has merely moved back to a lateral support level from late August.
The multiyear chart shows LMT stock’s important breakout past resistance dating back to 2008. The past few days of selling are now getting close to retesting the August breakout area near $121.
While this action is likely frustrating for those who bought the breakout in LMT and hoped for better follow-through buying, in the greater scheme of things the retesting of important breakout areas merely strengthens the breakout as it shakes out weak hands and attracts longer-term players to the stock. Of course such retests of breakout levels must be watched carefully — for what may look like a retest always has the potential to turn into a breakout fakeout move, which would signify a much more meaningful selloff in the stock.
On the daily chart of LMT I marked two near-term areas of support. After the stock sliced through its 50-day simple moving average last Thursday (yellow line), it arrived at the cross-section of its February uptrend as well as lateral support, around $122. If the stock wants to remain in a simple-to-trade uptrend, then it can’t slip much below $121 to $122. But the market rarely makes it easy for traders — so barring any sudden bullish reversal, the stock now is trading heavy enough to potentially fall toward its next support area at the 100-day simple moving average (blue line), currently near $116.70.
In other words, while LMT stock doesn’t look to be in a downward spiral, the news of employee furloughs has for the meantime capped its upside. Those looking to buy the stock should exercise patience and may find better entry levels in coming days or weeks.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.