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Lockheed Martin Stock Could Drop to $260

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Lockheed-Martin Corporation (LMT) traded under $300 for the first time since August 2017 on Monday, breaking a logarithmic scale trendline in place since 2013. This price action confirms an intermediate correction following the defense contractor’s historic run to an all-time high above $360. Shareholders should expect tough going in the coming weeks, with the decline possibly reaching deep support in the $260s.

Peace talks between North Korea and the United States have driven this selling pressure, with Lockheed now the world’s top supplier of missile defense systems. The stock will recover quickly if those talks break down or if Iran proceeds with plans to build nuclear weapons. The stock should eventually find its footing, even if peace breaks out around the world, because the decline looks like a natural reaction to several years of superior returns. (See also: Despite Korea Talks, Defense Poised for Growth.)

LMT Long-Term Chart (1995 – 2018)

 

A multi-year uptrend ended at $58.94 in 1998, giving way to a decline that accelerated in 1999, hitting an all-time low in the mid-teens just ahead of the new millennium. The stock tested support in April 2000 and turned higher, gaining ground at the same trajectory as the prior sell-off, and completed the round trip in April 2002. The rally wave ended three months later in the lower $70s, reversing into a failed breakout that reinforced 1998 resistance.

The downturn found support near $40 in 2003, generating a quiet consolidation that carved the rounded handle of a multi-year cup and handle pattern. It completed the bullish formation in 2005 and broke out, posting healthy gains into the 2008 top at $120.20. The stock then joined world markets in the economic collapse, giving up more than half its value into March 2009, when it posted the lowest low in four years.

It took another four years to complete a bounce into the 2008 high, generating an immediate breakout and uptrend that posted a long series of higher lows into 2018 when the uptrend stalled above $360. It carved a triple top pattern into April and broke down, setting off bearish signals that have controlled price action into the summer months. Meanwhile, the monthly stochastics oscillator entered a sell cycle in December 2017 and is just now reaching the oversold level.

The decline just hit the rising trendline in place since 2013 on this arithmetic chart but has already broken support on the log scale chart, setting off a major sell signal. The log scale trendline has narrowly aligned with the triple top breakdown, highlighting major resistance at $325. A buying surge above this level would improve the deteriorating technical outlook, while a sell-off through $290 would end the divergence between trendlines.

[Learn more about drawing trendlines and the other tools you need to pinpoint buy and sell signals in the Technical Analysis course on the Investopedia Academy.]

LMT Short-Term Chart (2016 – 2018)

 

A Fibonacci grid stretched across the uptrend in place since October 2016 highlights hidden harmonic support. The April breakdown continued into the .382 retracement and bounced back to test the underside of the triple top and 200-day exponential moving average (EMA) resistance. It spent more than a month banging against that ceiling, carving a small-scale fractal of the broader topping pattern. The test failed on June 14, generating a positive feedback loop that has just reached the 50% retracement. This price action has the all the earmarks of an evolving correction or downtrend.

On-balance volume (OBV) topped out in August 2016 (blue line) and entered a distribution wave that ended at the start of 2017. A year of buying power stalled at the prior high, easing into a rectangle pattern (red lines) that is still in play. The indicator is now testing horizontal support for the third time, with a breakdown confirming bearish price action while a bounce would open the door to another test at $325. (For more, see: How Lockheed Martin Makes Its Money.)

The Bottom Line

Lockheed-Martin has entered an intermediate correction that could reach the $260s, but a final test at new resistance near $325 could forestall that decline. (For additional reading, check out: Top 5 Shareholders of Lockheed Martin.)

<The author held Lockheed Martin shares in a family account at the time of publication.>

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June 26, 2018

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