The stock moves that followed make the trading strategy clear.
The Bethesda, Md., defense-and-aerospace major's stock traded as high as $392.54 at the open but stayed shy of its monthly risky level at $394.97. Then the stock failed to hold its 200-day simple moving average at $383.54.
The defense and aerospace giant reported delays of deliveries of supplies for each of its business areas. Here are the details as reported by TheStreet.com.
The shares closed Monday at $383.21, putting them down 1.6% year to date and in bull- market territory 44% above their March 23 low of $266.11.
The stock is also in correction territory 13% below its all-time intraday high of $442.53 set on Feb. 11.
The stock is reasonably priced with a p/e multiple of 18.3 and a dividend yield of 2.39%, according to Macrotrend.
The Daily Chart for Lockheed Martin
Courtesy of Refinitiv XENITH
Shares of Lockheed Martin had been above a golden cross since May 5, 2019, when the 50-day simple moving average rose above the 200-day simple moving average.
This buy signal tracked the stock to its all-time intraday high of $442.53 set on Feb. 11.
The stock broke below its 50-day SMA on Feb. 25 and tested its 200-day SMA on Feb. 27.
The annual pivot at $421.22 failed to hold on Feb. 24. The stock then gapped below its semiannual pivot at $404.26 on Feb. 27.
Failure to hold the 200-day SMA on March 6 led to the March 23 low of $266.11.
As April began, the stock held its quarterly pivot at $334.13 on April 2, which prompted strength up to its monthly risky level at $394.97. That in turn ,was not tested following the positive earnings report.
The stock then failed to hold its 200-day SMA at $383.51.
The Weekly Chart for Lockheed Martin
Courtesy of Refinitiv XENITH
The weekly chart for Lockheed is positive, with the stock above its five-week modified moving average at $372.40.
The stock is also above its 200-week simple moving average, or reversion to the mean, at $315.87. It's been above this key average since the week of March 27.
The 12x3x3 weekly slow stochastic reading is projected to rise to 53.02 this week from 46.7 on April 17.
At the February high this reading was above 90, which put the stock in an inflating parabolic bubble formation. Bubbles always pop.
If the stock ends the week below $272.40, the weekly chart will be downgraded to neutral.
Trading Strategy: Buy LMT on weakness to its quarterly value level at $334.13 and reduce holdings on strength to monthly and semiannual risky levels at $394.97 and $404.26, respectively.
How to use my value levels and risky levels:
The closes on Dec. 31, 2019 were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.
Second quarter 2020 and monthly levels for April were established based upon the March 31 closes.
New weekly levels are calculated after the end of each week.
New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.
To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.
A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.
A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.