I have seldom come across an investment with such a strong defined trend like the one I found in the following defense contractor.
Lockheed Martin Corporation (NYSE:LMT) stock is a company that engages in the research, design and implementation of advanced technologies in security and aerospace. The majority of their business stems from defense contracts obtained from the United States government. LMT stock represents a company that defines the framework of the U.S. military.
Lockheed Martin has been referred to as a supplier of the “war machine.” The act of war is never a good-news event, and some investors have ideologies that prevent them from investing in sectors such as this. It is unfortunate for them, because LMT stock returns have been relentless.
The stigma surrounding these so-called war machines is not all bad. Good has come out of this sector, as many of the technologies we use today stemmed from military use. The Internet is a prime example.
More Upside for LMT Stock?
Military budgets are ever increasing as governments continue to flow large sums of money into this sector. The spending trend on this sector is up and to the right, and shows no sign of abating. The following chart illustrates how the spending has translated into returns for shareholders.
Chart courtesy of StockCharts.com
LMT stock has a long defined trend that has spanned over 30 years. There are two parallel lines that define this trend. The pattern is known as an “ascending channel.” An ascending channel has two trend lines that define the upper and lower bounds. The share price oscillates between these two lines for as long as the trend permits. The slope of an ascending channel is positive, and the step-up pattern is clearly an uptrend.
Each time LMT stock hits one of these trend lines, the direction in which it travels is reversed until the next level of support or resistance is hit. LMT stock is currently trending higher, and the distance from the resistance line suggests that further upside is possible and expected.
The following chart reaffirms the bullish premise.
Chart courtesy of StockCharts.com
On February 8, 2012, LMT stock generated a “golden cross.” A golden cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. Traders use this signal to confirm that a bull market is on the horizon. It is wise to trade in the direction of this signal. A trader using this signal would be up handsomely. LMT stock has shown reluctance to undo this signal. The last time this signal changed was during the 2008 financial crisis.
The 200-day moving average is the dividing line between stocks trading in a bull market and stocks trading in a bear market. When the share price is trading above the moving average, it is a bullish signal; when the share price is trading below the moving average, it is bearish signal.
LMT stock has spent the majority of its trading days above this moving average. Aside from acting as a bullish indicator, the average has also acted as a level of support. LMT stock has tested this moving average on many occasions and has failed to break below it on a sustained basis. I would use any tests of the moving average as an opportunity to acquire shares.
The Bottom Line on LMT Stock
LMT stock represents a defense contractor that generates a majority of its business from the U.S. government. That relationship doesn’t seem like it is going to end anytime soon. As long as that relationship stays intact, LMT stock will continue to trend higher. I would use any weakness that tests the 200-day moving average as an opportunity to acquire shares.