NEW YORK (Real Money) -- The aerospace and defense sector had a strong start to the year, but recently we've seen many names rolling over, and even some like Raytheon (RTN), Boeing (BA) and Lockheed Martin (LMT) threaten to turn bearish.
However, sometimes when the biggest names in the group sour a bit, money stays in the group and just flows downhill to the smaller names. That very well may be the case here with Spirit AeroSystems (SPR) or even TransDigm Group (TDG). My focus is on Spirit.
While many other names in this group have pulled back, Spirit is pressing new highs here. The stock has remained in a bullish channel after the early-year push. Within that longer-term channel (black dashed lines), we see another channel, this one more uptrending, has formed. Price is now banging its head against the longer-term resistance, but in the middle of the shorter-term channel.
Ideally, we'd see another few days of consolidation so the support line of the short-term channel (blue line) would push through the long-term resistance line (black dashed line) and pull price along with it. That should create the strongest breakout here and give Spirit a lift into the upper $50s. A break under $53 should put folks on the sideline and waiting for $51 before buying into this name. I would note the bullish cross on the 13,5 TRIX has been a solid entry point. We witnessed it on May 11 most recently. The previous two crosses resulted in longer trending bullish moves, which should give a little more support to the current bullish thesis.
The weekly chart seems to echo the sentiment where the most opportunistic buy may come in the $51-$52 area. Again, we see this pattern of a short-term channel within a longer-term channel. But this time they are flipped. The longer-term channel is the more vertical of the two. Currently, Spirit is hitting the resistance of the short-term channel. The support levels of both channels coincide at the $52 level. This is a bit stronger than the support on the daily chart, so my anticipation would be any test of $51 should come intraweek, with the stock closing back over $52 by the end of the week.
I see two triggers here on Spirit. The first is as I just described, a pullback to $51 during the week with a close over $52 by the week's end, whether it be next week or the week after. The second trigger would be a close over $55. That should grab momentum buyers for a quick push higher. The second will likely be the easier buy while the first will likely offer a better risk-reward as your stop can be $50, but your upside remains the $58-$60 area. Keep an eye on the entire group as well. If some big names keep sinking and start sinking fast, sentiment may begin to outweigh rotation. I'm a cautious bull on this name, but still looking for upside.
Editor's Note: This article was originally published at 11:33 a.m. EDT on Real Money on May 28.