Textron Stock Breakout Sparked by Buyout Rumors

TXT StockTXT Stock: Breakout

There are rumors swirling that Lockheed Martin Corporation (NYSE:LMT) is interested in buying Textron Inc. (NYSE:TXT). As of yet, this rumor is unconfirmed because a spokesperson for Lockheed Martin failed to comment on it. Regardless, this unconfirmed rumor caused Textron stock to leap higher by 3.6%. This surge in price has done a number on the TXT stock chart, which is now suggesting that a higher stock price is a reasonable assumption. This assumption is predicated on the surge in price that occurred on May 11 holding up.

Before I delve further into my analysis, it is worth noting that my views on TXT stock are based on the price action and indications that are captured on its stock chart. This method of investment analysis is known as technical analysis. This method is based on the notion that historical data points can be used to predict future movements in price. At first glance, this may sound ludicrous, but I have found great value in this method of analysis. Perhaps my followers can also attest to the value it provides.

This price chart illustrates that a technical price pattern was just completed via a breakout. This breakout occurred as the stock prices exited the price pattern in an upwards direction, suggesting that bullish implications are likely to follow.

The surge in price has changed the dynamics of the Textron stock chart, and the following price chart illustrates the developments that resulted from the unconfirmed buyout rumors.

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textron stock chart

Chart courtesy of StockCharts.com

This price chart illustrates that a technical price pattern was just completed via a breakout. This breakout occurred as the stock prices exited the price pattern in an upwards direction, suggesting that bullish implications are likely to follow.

This assumption is based on the wave structure that is currently in development. This wave structure is developing above the 200-day moving average. This moving average is popular among the trend-following community because the slope of this moving average is used to distinguish the direction of the predominant trend. It also serves as a dividing line between stocks trading in a bull market and stocks trading in a bear market.

The slope of this 200-day moving average is positive, indicating that the predominant trend is bullish. Textron shares are trading above this moving average, reinforcing the notion that the trend is moving towards higher prices.

The wave structure that is in development consists of two waves: an impulse wave and a consolidation wave. An impulse wave functions to move the price in either or an upward or downward direction. A consolidation wave functions to set up the next impulse wave and unwind any overbought or oversold conditions that were created in the wave that preceded it. A constructive wave structure using these two waves is a necessary ingredient in a sustainable stock trend.

Exiting the consolidation wave in an upward direction serves to suggest that another advancing impulse wave is now set to develop, and the fact that this wave structure is occurring above the 200-day moving average reinforces this notion.

This constructive bullish price action is already occurring on a bullish backdrop, which only adds credence to the possibility of a higher stock price.

The bullish backdrop I am referring to is illustrated on the following Textron stock chart.

TXT stock chart

Chart courtesy of StockCharts.com

The bullish backdrop in Textron shares slowly began to develop after the financial crisis concluded in the spring of 2009. This bullish backdrop is a price trend of higher highs and higher lows, which is effectively captured using an ascending channel.

An ascending channel is technical price pattern that contains two upward-sloping trend lines. These trend lines are created by connecting the peaks and the troughs, and the trend lines serve to represent support and resistance. TXT stock has been oscillating between these levels of support and resistance for the past eight years, and I do not see anything on the price chart that would suggest that this price action is set to end anytime soon. I find it safe to assume that as long as the share price is confined within these two trend lines, the trend towards higher prices remains intact and is set to continue.

At this moment, this bullish backdrop is being reinforced by the moving average convergence/divergence (MACD) indicator located in lower panel. MACD is a trend-following momentum indicator. This indicator distinguishes between bullish and bearish momentum by using the crossing of signal lines.

A bullish cross was generated in November 2016 and is highlighted on the chart above. This signal-line cross serves to suggest that bullish momentum is governing Textron stock. This bullish momentum generates a tailwind that creates an environment where the path of least resistance is tilted towards a higher stock price.

Bottom Line on Textron Stock

The buyout rumor has caused the Textron stock price to exit a technical price pattern. This completed price pattern has occurred within a bullish backdrop. These indications carry bullish implications that are strongly suggestive of a higher TXT stock price.