Raytheon Stock Bulls Should Wait for Lower Price to Jump In

NEW YORK (TheStreet) -- Raytheon  (RTN) bulls should wait to buy the stock. Lower entry levels are on the horizon.

Shares of the defense contractor fell below a key support level on Friday. The stock lost just over 1% as it continued a five-day losing streak. Selling pressure, which began to pick up on Wednesday, surged to its heaviest level in almost 12 weeks. The increasing downside momentum drove Raytheon shares below a key level of $103.60.

Back in early February, after the stock quickly recovered from a guidance-inspired selloff, the shares left behind an upside gap. The Feb. 3 breakout gap sparked a volatile yet steady climb to new highs for the stock.

By mid-March, Raytheon had eclipsed its 2014 peak with an impressive performance on March 20. The stock's opening gap lifted it above the old highs, taking out heavy resistance near $111 in the process. This high-volume breakout move had tremendous promise, but the gain was quickly given back. Three days later, the shares were in full retreat and have been drifting lower since. 

In late April, Raytheon filled the early February upside gap. The stock recovered nicely from this key support area, which included the 200-day moving average, but remained well below the April high. Finally, last week, the recovery ended with a damaging breakdown, leaving the stock in a vulnerable position as a new month begins.

The Street's Jim Cramer is a fan of Raytheon, which makes missile defense systems and just landed huge contracts in both Poland and Qatar. He suggests buying the stock on any weakness such as what the markets are seeing right now.

More downside now appears likely for Raytheon. With the gap support area now clearly broken and the 200-day moving average losing its grip, the stock appears to be headed for a retest of its 2015 low near $98. It's likely Raytheon will return to an oversold moving average convergence/divergence (MACD) reading as the shares fall below the $100 area. That will set the stock up as a low long opportunity near its January spike low of $98.20.

I would consider the $99 to $97 area as the buy zone. A close below the $96 level would be a warning sign that a deeper pullback is ahead before the shares can build a solid base. If Raytheon can find its footing near the initial 2015 lows, a rally back up to the April/May lows could develop rather quickly.

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At the time of publication, Morrow had no positions in the stocks mentioned.

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