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Buy or Sell Lockheed Martin on Earnings? Here's the Trade

Lockheed Martin is trading lower following earnings but the charts really lack clarity. Here's what bulls need to see now.

Lockheed Martin  (LMT) - Get Lockheed Martin Corporation Report was falling nearly 2% Tuesday after releasing quarterly earnings.

The stock has been surprisingly quiet across multiple timeframes. Shares have risen 2.5% over the past three months but have decline 5.8% over the past six months. The results are even quieter in 2020 and over the past year, down 2.9% and up 1.5%, respectively.

Given this relatively flat performance, investors were hoping that earnings could help propel Lockheed out of this funk. That’s particularly true given the quality of the report.

Third-quarter earnings of $6.25 a share grew 10.4% year over year and easily beat expectations of $6.10 a share. Revenue climbed 8.8% to $16.5 billion, beating estimates by about $300 million.

Even better, Lockheed raised its full-year earnings guidance. However, its 2021 revenue outlook was slightly short of expectations.

Despite the numerous positives, investors seem to be latching on to the negatives. Let’s look at the charts.

Trading Lockheed Martin

Daily chart of Lockheed Martin stock.

Daily chart of Lockheed Martin stock.

As an investor, one could argue that the flat share price in combination with a decent quarter makes Lockheed a decent stock to buy. Not many would argue with that logic.

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For traders though, we crave clarity - we want to see a decisive move and we don’t necessarily care which way it is. With Lockheed, we don’t have any of that clarity just yet.

The stock is breaking below all of its major moving averages, which is clearly not bullish. However, it’s not breaking down on aggressive volume or with any real conviction.

That said, this dip isn’t occurring in a well-defined uptrend into support - the stock is just sort of muddling around.

A rotation below the October and September lows would change that. A break of $374.28 puts Lockheed below this month’s and last month’s lows, as well as the 10-month moving average currently at $375.60.

A break of this level would quickly put the 61.8% retracement on the table near $369, followed more notably by the 50% retracement and support level near $350.

On the upside, clarity comes from not only clearing its key moving averages, but seeing Lockheed Martin close above downtrend resistance (blue line) and $400.

Downtrend resistance has been stubbornly fierce, so clearing this level could attractive some of the more aggressive bulls. However, Lockheed Martin stock has topped out within $3 of the $400 mark in five the last eight months and within $5 in six of the last eight months.

Clearing this level could create a significant rotation higher.