Last Friday, my indicators were bullish-to-neutral, so I gave you a bearish trade to provide a little protection. The market’s trading was choppy, though it did ultimately close higher by the end of the day.
I think it’s time for a bullish call option on Textron Inc. (NYSE:TXT) to play a potential-jump higher in the market.
TXT has been following its short-term moving average higher, and I think it will challenge resistance at its 200-day moving average soon.
Earnings Beats and Easing Restrictions
TXT is a defense contractor, and I’m often fond of saying “there’s no better customer than the U.S. government.”
That’s one of the reasons The Boeing Company (NYSE:BA) will probably survive the COVID-19 pandemic’s effect on the airlines, some of its biggest customers.
But TXT relies a little less on the whims of the private market and more on selling to governments and militaries around the world.
That may be one reason it was able to outperform on its earnings report this quarter, losing $0.13 per share instead of the expected $0.15.
Its revenue from its aviation segment still took a hit, dropping by 33.5%, and revenue in its industrial segment took a similar hit. But its Bell and Textron Systems segments did well, and Textron Systems won a $240 million contract to provide two U.S. Air Force bases with training service.
The U.S. also rolled back its restrictions on the sales of armed drones, which opens up the entire defense sector to sell to new markets.
Following the Trendline
Moving averages cans smooth out the day-to-day volatility in the market, letting investors get a clear idea of which direction a stock is moving. They can also act as support and resistance. My regular readers know a stock’s price doesn’t actually have to touch a moving average for it to influence the stock’s movement.
In the chart below, you can see that TXT’s price came very close to its 200-day moving average (the solid blue line), but it didn’t actually touch it. I believe that moving average will come into play as TXT continues rising.
Daily Chart of Textron, Inc. (TXT) — Chart Source: TradingView
But the chart also shows that TXT’s up-trending support (dashed blue line) lines up with its 50-day moving average (green line), strengthening its chances of staying above that level.
But the chart also shows that TXT’s up-trending support lines up with its 50-day moving average, strengthening its chances of staying above that level.
TXT will likely challenge resistance at its 200-day moving average soon, and it could break above it. Even if it doesn’t, I want the chance to collect on that challenge.
Buy to open the Textron, Inc. (TXT) Sept. 18th $40 Calls (TXT200918C00040000) at $0.90 or lower.
InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.