Lockheed Martin’s (LMT) recent move was a classic “buy the rumor, sell the news” story. The first attack on Iran began on Saturday, February 28th, and the stock’s peak was literally the first day of trading after the conflict began, Monday, March 2nd. Since then, shares have traded over 28% lower and are now approaching key technical support levels that make the stock look very interesting for both a short-term upswing and as a potential longer-term entry point. Basically, there is talk of a supply bottleneck and the need to quickly increase military supplies. Defense spending may be a sensitive election issue, but both sides of the aisle tend to rarely neglect it. While a basket of stocks in the group is never a bad idea for diversification – you can use the iShares US Aerospace & Defense ETF (ITA) to achieve this goal – Lockheed Martin is one stock in this sector that now offers clear strategic areas to trade. The Setup On the one-year daily chart we see a classic pattern from Technical Analysis 101. It is the entire life cycle of a trade. Consolidation, a breakout, a rally, nice topping and reversal pattern followed by a targeted sell-off. From this head-to-shoulders formation, we had downside targets that were $90 below the $600 neckline. This $510 target was reached, stopping right in a major consolidation area where previous resistance is now acting as support. This polarity is what we like to see when a key trend changes and then returns to test its previous key levels. What to watch now We see opportunities. While I prefer my stocks above the 200-day moving average, the risk-reward ratio is favorable to nibble on this $500-$515 range. Why nibble and not go all out? Because there could be a better chance if this level is not maintained. If I break below $500, I don’t want to be stopped out. Instead, let’s look at the cost average as it approaches its longer-term uptrend and larger pockets of support, as seen on a 5-year weekly chart. If we reset this chart to a 5-year weekly basis, we confirm our support areas and see further potential downside risk. The $485 area coincides with the 200-week moving average as well as our uptrend on the one-year daily chart. Momentum This is also a crucial part of the buying thesis. Oversold conditions prevailed in both time frames. That doesn’t mean a trend reversal is inevitable, but it is getting closer. On a daily basis, we have a bullish divergence in the RSI and believe price will confirm this momentum shift. On the weekly chart we are at the most oversold since 2025. However, if we use 2025 as a guide, one can see that oversold does not mean a recovery is imminent. We will see that a low is reached. This shows the probability that the downside risk is lower. The Trade Buy a tranche at the current level and wait. If the stock recovers, buy more on a break above the 200-day level. If this is the bottom, then rebound with the trade up to the $550 level as it fills the gap and reaches its first resistance. If the sector regains its leadership role, the rally to $585 and its longer-term downtrend should continue. If the price cannot sustain $500, we would like to keep the average cost at the $485 level. There is strong support for a longer-term entry with similar upside targets. If the decline continues, patience is a virtue and consider this a longer-term hold. There is major support in the mid-$400s and a consistent and steady uptrend dating back to 2012. This ticks several boxes – a potential setup for a quick short-term recovery from an oversold condition as well as a great longer-term holding opportunity. Recent activity has provided investors with a good entry point to either trade this industrial and defense powerhouse or simply add it to their portfolio. – Jay Woods, CMT at Chase Games Disclosures – none. DISCLOSURES: All opinions expressed by CNBC Pro contributors are theirs alone and do not reflect the opinions of CNBC or its parent company or affiliates and may have previously been disseminated by them on television, radio, the Internet or any other medium. THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR RECOMMENDATION TO PURCHASE SECURITIES OR OTHER FINANCIAL ASSETS. The content is general in nature and does not reflect the individual circumstances of any individual. The above content may not be appropriate for your particular circumstances. Before making any financial decisions, be sure to seek the advice of your own financial or investment advisor. Click here for the full disclaimer.
