The week began with United Technologies  (UTX - Get Report) and Raytheon  (RTN - Get Report) announcing they would merge in a deal called a merger of equals. Both stocks gapped higher at the open on Monday with its technical levels coming into play. United Tech popped as high as $135.73, shy of its quarterly pivot at $136.83. Raytheon gapped to $193.98 then failed to hold its annual and semiannual risky levels at $190.52 and $191.25, respectively.

These gains could not be sustained as concerns quickly came to light. The new company would be called Raytheon Technologies and become the second-largest aerospace and defense contractor in the U.S. Besides anti-trust concerns, hedge fund managers Bill Ackman and Daniel Loeb oppose the deal. Both are shareholders of United Tech.

These concerns resulted in weakness for both stocks. United Tech slumped below its annual pivot at $127.97 and traded as low as $122.18 on June 11. Raytheon fell below its 200-day simple moving average at $180.71 trading as low as $173.19 on June 12.

How do you sort through this extreme volatility? You explain the issues and analyze the daily and weekly charts.

The new company called Raytheon Technologies creates uncertainty as to the stock symbol. The deal does not include Otis and Carrier, which are expected to be spun off as separate companies in the first half of 2020.

How will S&P Dow Jones Indices, a Division of S&P Global, decide on whether the new entity will be a component of the Dow Jones Industrial Average? Recently they made a huge mistake by replacing DowDuPont (DWDP) with Dow (DOW) . There was zero historical pricing data for DOW when this occurred on April 2. I call the Dow 30 the Dow 29 because of this mistake. Given that the new name will be Raytheon Technologies, I hope it trades under the symbol RTN, with an adjusted historical price history. If they do not maintain a price history, the Dow 30 may become the Dow 28, unless S&P chooses another stock as a new Dow component.

The Daily Chart for United Technologies

Courtesy of Refinitiv XENITH

United Technologies has had a bull market run of 23.5% from its Dec. 26 low of $100.48 to its June 12 close of $124.07. At the same time the stock is in correction territory, down 14.1% from its May 1 high of $144.40. Look at the volatility so far this week. The positive reaction to the merger with Raytheon kept United Tech below its quarterly risky level at $136.83 on June 10. The downside reversal continued to as low as $122.18 on June 11 below its annual pivot at $127.97. The stock's monthly and semiannual value levels at $109.16 and $108.74 expire at the end of June.

The Weekly Chart for United Technologies

Courtesy of Refinitiv XENITH

United Technologies has a negative weekly chart with the stock below its five-week modified moving average of $130.65. The stock is well above its 200-week simple moving average or "reversion to the mean" at $114.89. The 12x3x3 weekly slow stochastic reading is projected to decline to 43.51 this week, down from 53.42 on June 7.

Trading Strategist: Buy weakness to the 200-week simple moving average at $114.89 and reduce holdings on strength to the annual pivot at $127.97.

The Daily Chart for Raytheon

Courtesy of Refinitiv XENITH

Raytheon has had a bull market run of 22.7% from its Dec. 26 low of $144.27 to its June 12 close of $177.00. At the same time, the stock is down 8.8% from its June 10 high of $193.98. Look at the volatility so far this week. The positive reaction to the merger with United Technologies failed to keep Raytheon above its annual and semiannual risky levels at $190.52 and $191.25, respectively. The downside reversal continued to as low as $173.19 on June 12. The stock's monthly value level lags at $140.82. The only level that will not expire at the end in June is the annual risky level at $190.52.

The Weekly Chart for Raytheon

Courtesy of Refinitiv XENITH

The weekly chart for Raytheon is negative with the stock below its five-week modified moving average of $179.36. The stock is well above its 200-week simple moving average or "reversion to the mean" at $162.96. The 12x3x3 weekly slow stochastic reading is projected to decline to 38.47 this week, down from 39.99 on June 7.

Trading Strategist: Buy weakness to the 200-week simple moving average at $162.96 and reduce holdings on strength to the annual pivot at $190.52.

How to use my value levels and risky levels:

Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March, April and May. The quarterly level was changed at the end of March. 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.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.