Chart Of The Day: Lockheed Martin Could Continue Higher On Bullish Profit-Taking

After Russia's invasion of Ukraine on Feb. 24, the future looks brighter for Lockheed Martin (NYSE:LMT), the world's largest defense contractor, as the US and other countries beef up their military capabilities. Everyone knows when a war begins, but unfortunately, no one knows when it might end, making the need for LMT's security services and aerospace technology increasingly desirable.

And though fears of this aggression escalating into what some are calling World War III persist, presumably even LMT shareholders don't want to see that happen, notwithstanding the dramatic increase the conflagration could bring for the company's shares.

Lockheed Martin reports Q1 2022 earnings on Tuesday, Apr. 19 before the bell. Analysts are expecting an EPS of $6.21 on $15.64 billion in revenue. Although those figures are lower than last year's corresponding quarter, which came in at $6.56 EPS on $16.26 billion revenue, the Q1 report will barely reflect any revenue uptick from the Eastern European conflict.

Shares of Lockheed Martin have gained 7% from the Mar. 29 low, and are a healthy 32% higher since the start of 2022. Plus, technicals are signaling the stock will continue on its upward trajectory.

LMT Daily

The price completed a Symmetrical Triangle, bullish after the near 25% surge within just nine sessions. Traders who initially couldn't believe their eyes in early March quickly locked in profits, pushing the stock down 14.3% until Mar.16.

The price then rose again before falling, but each subsequent move was smaller—contracting like a coiling spring. Even after another price jump, continuous demand demonstrated that the fall following gains wasn't a bearish move but simply spurred by bullish profit-taking. The upside breakout proves that demand indeed outweighs supply.

We are, however, somewhat ambivalent about the Symmetrical Triangle. We would have preferred the breakout to occur about two-thirds into the pattern. The escape through the triangle's vertex may have depleted some of the explosive effects we'd expect after the crowded trade when buyers and sellers essentially faced off.

We also didn't see the type of bursting volume that would have supported as powerful a breakout. Perhaps the longer view provides some clarity.

LMT Monthly

On the monthly chart, which shows a continued, six-month straight gain—for the first time since mid-2016—there may have been a completion of a Symmetrical Triangle between December 2018 and January 2022. The upside breakout signaled a resumption of the long-term underlying uptrend.

However, bulls may now have difficulty penetrating the top of a rising channel in play since 2018. The volume spikes throughout have been decreasing, bolstering the argument for a return move toward $400, to retest the pattern's support.

That is unless Russian aggression accelerates further, spurring additional global military demand, reflected in the daily Symmetrical Triangle. That could be the impetus for a break-through of the top of the rising channel, creating a steeper incline.

Trading Strategies

Conservative traders should wait for the monthly return move or the rising channel breakout.

Moderate traders would wait for the price to confirm the daily Symmetrical Triangle's integrity.

Aggressive traders could enter a contrarian trade, shorting a potential return move to the daily Symmetrical Triangle that coincides with the top of the monthly channel.

The more aggressive the trade, the more its success relies on strict money management. Below is a basic example to demonstrate a plan's salient points. We provide whole numbers so the example is simple and clear. Tweak your entries and exits according to your timing and consider round numbers as psychological support and resistance.

Trade Sample – Contrarian Short

• Entry: $470
• Stop-Loss: $475
• Risk: $5
• Target: $450
• Reward: $20
• Risk-Reward Ratio: 1:4