Shares of industrial stocks, i.e. the industrial sector of the S&P 500, have rallied along with the broader market in recent days. However, this group in my eye continues to show concerning signs where ultimately lower prices look to be ahead. As such, I am looking for potential industrial stocks to trade and one such company on my radar is none other than defense company General Dynamics Corporation (NYSE:GD).
GD stock currently sits at an interesting technical juncture where two trades are setting up depending on one’s desired time frame.
Although the industrial sector “only” makes up a little less than 10% of the entire S&P 500, it is a crucial part of the whole as it relates to growth signals for the U.S. economy. Not only that, but given these companies’ good amount of sales outside of the U.S., we can often get good insight as to growth readings of European and Asian economies.
Of course this alone is never enough for a holistic picture of economic growth, but it does help to paint a picture.
GD Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Moving on to the charts we see that on the multi-year weekly chart GD stock as a result of the most recent sharp two-week selloff it mean-reverted back to its black diagonal support line. This selling spree kicked off with the company’s earnings report on April 25th, which that week resulted in a big bearish reversal candle on the weekly chart.
Another down-week followed after that and this week the stock is taking a breather at the aforementioned support line. The stock could indeed bounce and/or back and fill more in the near term but ultimately in my eye there may be more downside ahead.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart we see that the down-gap from April 25 which, within just three trading days, led GD stock to slice through all of its medium-term simple moving averages. My bet for now is that those moving averages will offer a layer of technical resistance, which offers active investors and trades two opportunities: 1. Play the stock higher into those moving averages and/or 2. Sell/short the stock upon arrival at the moving averages.
A first upside profit target for trade idea No. 1 is around the $208.50 area, which is where the red 200-day simple moving average currently resides. For this trade ultimately there may be upside all the way to about $214. Trade idea No. 2 would trigger once a strong bearish reversal rears its head, anywhere around the $208.50 to $214 area. A logical first downside profit target for this trade is the $190 area.
Check out Anthony Mirhaydari’s Daily Market Outlook for May 11.
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