by Serge Berger | January 23, 2014 8:02 am
Trading aerospace and defense company General Dynamics (GD) reported its fourth-quarter 2013 results before the bell yesterday, leading GD stock to pop to fresh all-time highs in a move that cannot be dismissed on the charts.
The government contractor and S&P 500 component came in with earnings of $1.76 per share — up 27% year-over-year and better than Wall Street estimates by a penny. Revenue came in at $8.11 billion vs. the $7.99 billion estimated by analysts, but flat YOY.
In the conference call, General Dynamics guided earnings for the fiscal year 2014 below analyst estimates and noted that Gulfstream business jets are the major growth engine for earnings and revenue across the company, but that most of its businesses are looking up.
General Dynamics also revealed an accelerated buyback plan that will eat up 11.4 million shares of GD stock, currently valued at roughly $1.1 billion. The shares are to be repurchased from a financial institution and represent 3.2% of General Dynamics’ outstanding stock.
By the end of Wednesday, GD stock had rallied 4.6% on much-higher-than-average volume of more than 5.4 million shares.
The move led to GD stock breaking past a resistance line around the $95/$96 area that dates back to late 2007. At the time, GD stock struggled with this resistance level, and after testing it three times over the ensuing nine months, it ultimately failed and fell into the abyss as the financial crisis pulled it lower. Through this lens, Wednesday’s rally and breakout is of good technical importance, although a retest of the breakout line around $95 is certainly possible in coming weeks.
On the daily chart, Wednesday’s rally looks both powerful and substantial, as it came after a multiweek consolidation time in the form of an unusually tight trading range. GD stock is supported by its rising 50- (yellow) and 100-day (blue) simple moving averages, and the stochastic oscillator has more upside to test still.
Traders that use candlesticks for technical analysis can appreciate the strength and importance of Thursday’s breakout, which came after a long series of doji or doji-like candles. Those indecision candles, marked by an almost equal open-and-close print on any given day, show a balance between bulls and bears, and on Thursday the bulls made a bold statement.
Barring any quick reversal, General Dynamics bulls should hold on to the ball for some time to come.
On the upside, GD stock looks to have near-term room toward $104, while a give-up of more than half of Thursday’s rally would at least call for a retest of the breakout area around $95/$96.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.
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