NEW YORK (Real Money) -- The aerospace and defense sector had a strong start to the year, but recently we've seen many names rolling over, and even some like Raytheon (RTN) - Get Report, Boeing (BA) - Get Report and Lockheed Martin (LMT) - Get Report threaten to turn bearish.
However, sometimes when the biggest names in the group sour a bit, money stays in the group and just flows downhill to the smaller names. That very well may be the case here with Spirit AeroSystems (SPR) - Get Report or even TransDigm Group (TDG) - Get Report. My focus is on Spirit.
While many other names in this group have pulled back, Spirit is pressing new highs here. The stock has remained in a bullish channel after the early-year push. Within that longer-term channel (black dashed lines), we see another channel, this one more uptrending, has formed. Price is now banging its head against the longer-term resistance, but in the middle of the shorter-term channel.
Ideally, we'd see another few days of consolidation so the support line of the short-term channel (blue line) would push through the long-term resistance line (black dashed line) and pull price along with it. That should create the strongest breakout here and give Spirit a lift into the upper $50s. A break under $53 should put folks on the sideline and waiting for $51 before buying into this name. I would note the bullish cross on the 13,5 TRIX has been a solid entry point. We witnessed it on May 11 most recently. The previous two crosses resulted in longer trending bullish moves, which should give a little more support to the current bullish thesis.
The weekly chart seems to echo the sentiment where the most opportunistic buy may come in the $51-$52 area. Again, we see this pattern of a short-term channel within a longer-term channel. But this time they are flipped. The longer-term channel is the more vertical of the two. Currently, Spirit is hitting the resistance of the short-term channel. The support levels of both channels coincide at the $52 level. This is a bit stronger than the support on the daily chart, so my anticipation would be any test of $51 should come intraweek, with the stock closing back over $52 by the end of the week.
I see two triggers here on Spirit. The first is as I just described, a pullback to $51 during the week with a close over $52 by the week's end, whether it be next week or the week after. The second trigger would be a close over $55. That should grab momentum buyers for a quick push higher. The second will likely be the easier buy while the first will likely offer a better risk-reward as your stop can be $50, but your upside remains the $58-$60 area. Keep an eye on the entire group as well. If some big names keep sinking and start sinking fast, sentiment may begin to outweigh rotation. I'm a cautious bull on this name, but still looking for upside.
Editor's Note: This article was originally published at 11:33 a.m. EDT on Real Money on May 28.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.