This Is What Trump Has Done to Defense Stocks -- Buy Boeing, and Others?

Defense spending is on the rise and should continue to do so.

Lockheed Martin (LMT) , was recently awarded a $5.5 billion contract for additional F-35 fighter jets. This stock is up 19.7% since the election, and set its all-time intraday high on Monday.

Boeing (BA) is the top-performing component of the Dow Jones Industrial Average, with a year-to-date gain of 31%. The stock is up 44.4% since the election and traded to its all-time intraday high on Monday. Boeing is the only member of the eight "Dogs of the Dow" for 2017 to be outperforming the average. 

General Dynamics (GD)  is up 32.2% since the election, but it lags its June 20 all-time high.

Northrop Grumman (NOC)  is up 18.6% since its post-election low set on Dec. 12. This stock set its all-time intraday high on Friday.

When stocks have strong momentum, earnings will be the driver of additional share price gains. Lockheed Martin reports first on July 18. Boeing, General Dynamics and Northrop Grumman report earnings on July 26.

Here is our sector analysis. 

Scorecard for the Four Defense Contractors
Scorecard for the Four Defense Contractors

When looking at the weekly charts below, note that the 200-week simple moving averages shown in green, is considered the "reversion to the mean." The "reversion to the mean" is an investment theory that the price of a stock will eventually return to a longer-term simple moving average; and the 200-week is simple to track.

A ticker trading above its "reversion to the mean" will eventually decline back to it on weakness. Similarly, a ticker trading below its "reversion to the mean" will eventually rebound to it on strength.

Boeing
Boeing
Courtesy of MetaStock Xenith

The weekly chart for Boeing is positive but overbought with the stock above its five-week modified moving average of $195.78. The stock is well above its 200-week simple moving average of $140.92, which is the "reversion to the mean."

The 12x3x3 weekly slow stochastic reading is projected to end the week at 89.35, well above the overbought threshold of 80.00.

Trading strategy: Buy weakness to my semiannual, annual and quarterly value levels of $194.99, $177.45 and $170.64, respectively. Sell strength to my weekly and monthly risky levels of $205.37 and $211.95, respectively.

General Dynamics
General Dynamics
Courtesy of MetaStock Xenith

The weekly chart for General Dynamics is neutral, with the stock above its five-week modified moving average of $199.47. The stock is well above its 200-week simple moving average of $139.91, which is the "reversion to the mean". The 12x3x3 weekly slow stochastic reading is projected to slip to 77.19 this week, below the overbought threshold of 80.00.

Trading strategy: Buy weakness to my quarterly and annual value levels $182.13 and $162.56, respectively. Sell strength to my semiannual and monthly risky levels of $209.08 and $226.89, respectively.

Lockheed Martin
Lockheed Martin
Courtesy of MetaStock Xenith

The weekly chart for Lockheed Martin is neutral, with the stock above its five-week modified moving average of $280.22. The stock is well above its 200-week simple moving average of $207.45, which is the "reversion to the mean."

The 12x3x3 weekly slow stochastic reading is projected to slip to 78.28 this week, falling just below its overbought threshold of 80.00.

Trading strategy: Buy weakness to my annual value level of $221.86. My monthly pivot is $288.40. Sell strength to my quarterly and semiannual risky levels of $304.46 and $321.32, respectively.

Northrop Grumman
Northrop Grumman
Courtesy of MetaStock Xenith

The weekly chart for Northrop Grumman is positive but overbought with the stock above its five-week modified moving average of $256.98. The stock is well above its 200-week simple moving average of $174.80, which is the "reversion to the mean."

The 12x3x3 weekly slow stochastic reading is projected to end the week at 85.75, well above the overbought threshold of 80.00.

Trading strategy: Buy weakness to my annual value level of $215.02. My monthly pivot is $263.19. Sell strength to my semiannual and quarterly risky levels of $277.59 and $279.75, respectively.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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