Two stocks in the aerospace sector have undergone very similar patterns of decline, recovery and then consolidation but on different timeframes. In both cases, however, the stocks are poised to break out of their consolidation patterns, and look to move higher over the intermediate and short term.
Shares of BE Aerospace (BEAV) saw a pullback of over 44% from their 2014 all-time high but this year managed to bounce back up to the 38% Fibonacci retracement level of the move. They have been consolidating in a horizontal channel under that resistance with support provided by the 200-day moving average. Last week they closed at the intersection of the channel top and a downtrend line drawn off the 2014 and 2015 highs.
The stochastics oscillator has made a bullish crossover and, like moving average convergence/divergence, is tracking higher and above its center line. These indications reflect positive price and trend momentum. The money flow index, a volume-weighted relative strength measure, is above its center line, and Chaikin money flow is in positive territory, suggesting accumulation during the consolidation phase. Bollinger bandwidth is extremely compressed and at a level that, in the past, has been followed by volatile moves.
The stock is a long candidate after penetration of channel resistance using a trailing percentage stop.
The price action and the technical indications over the charted period are similar on the Rockwell Collins (COL) daily chart. A large-percentage move lower from the April high this year, followed by a bounce off the July low, which met resistance that became the upper range of a sideways consolidation channel. The stock closed last week just above its 50-day moving average and the downtrend line drawn off the recent highs, and right on channel resistance.
Moving average convergence/divergence and the relative strength index are flat to slightly higher and above or at their center lines. Chaikin money flow is well into positive territory, and the accumulation/distribution line is outpacing its 21-period average. Bollinger band width is contracted and set up for a volatility squeeze and potentially explosive price action.
The stock is a long candidate after a channel breakout, again, using a trailing percentage stop.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.