Posted on 12/11/12 - 11:37 AM EST
The recent focus on increasing gun sales in America is naturally bound up with all sorts of political and social undertones. For the past three years, firearms maker Sturm, Ruger & Company ( RGR) has appreciated more than 500%. The other major firearms maker, Smith & Wesson ( SWHC), began to make its move roughly thirteen months ago.Over the past week, though, both stocks have been hit with aggressive bouts of selling. Just as the national media (and many non-market types, in general) caught on to this theme, the stocks sold off, particularly after Smith & Wesson's earnings last week. However, the thesis of more Americans yearning to purchase and possess firearms appears wholly intact. The issue then becomes whether this is a mere shakeout of latecomer, momentum longs, or instead the end of a multi-quarter bull run. Since SWHC's earnings served as the excuse or catalyst for the sell-off, depending on your perspective, let's look at an updated weekly chart first. You can see a clear support trendline dating back to the beginning of the uptrend in late-2011. Currently, price is flirting with breaking this trendline. This trendline is quite steep and blatantly obvious. So, I would not be surprised to see it breached imminently. However, I suspect this trade requires thinking to the next level, given how many traders and casual market observers seem to now be on to the fact that firearms makers are enjoying a bull market of their own (More on this after the first chart, below).