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Tom Aspray, professional trader and analyst was originally trained as a biochemist but began using his computer expertise to analyze the financial markets in the early 1980s. Mr. Aspray has written widely on technical analysis and has given over 60 presentations around the world. Many of the... More
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  • Thumbs Up For 2 Defense Stocks 0 comments
    Nov 6, 2012 10:58 AM | about stocks: HON, LLL, SPY, XLU

    he market appears to have already voted on these two defense related companies according to Moneyshow's Tom Aspray as their technical action suggest continued growth in addition to a 2.6% yield.

    Stocks had a quiet session Monday ahead of the election as the moderate early selling was well absorbed. Tuesday's trading is likely to be similar and we could see further dumping of utility stocks as some fear dividend taxes will be raised.

    The Select Sector SPDR Utilities (XLU) was down 1.6% Monday and now has a yield of 4.02%. Many of the individual utilities and other high yielding stocks dropped even more. Some of the high yielding stocks I have previously recommended are now reaching more important support so the action over the next week will be important.

    Clearly there is plenty of money on the sidelines, and I would expect stocks to bounce once the dust settles from the election. The common perception is that defense spending will be higher under a President Romney than it would be under a second term for President Obama.

    These two defense stocks have broken through their weekly resistance and have outperformed the Spyder Trust (SPY) by over 8% just since the start of September.

    chart
    Click to Enlarge

    Chart Analysis: Honeywell International Inc. (HON) is a $49.2 billion aerospace/defense product and services company that yields 2.6%.

    • The weekly chart (through 11/2) shows that HON overcame weekly resistance, line a, at $62.70 and the all time highs from May 2008 just three weeks ago.
    • The weekly relative performance or RS analysis has turned up sharply over the past five weeks.
    • The support at line c appears to have held with next resistance at the February 2012 highs.
    • The weekly OBV broke through its resistance, line d, in early August and has been above its WMA since late 2011.
    • There is major support on the monthly charts in the $52 area.

    The daily chart of Honeywell International Inc. (HON) shows a series of higher highs but the ranges recently have been quite wide.

    • HON has been holding its 20-day EMA now at $61.46 with last month's low at $60.05
    • The daily uptrend, line e, is now just above $59.
    • The daily relative performance broke through its resistance, line f, last month.
    • The daily OBV is still acting weaker than prices despite the spike in upside volume on October 19th.
    • The OBV has first resistance at line i with stronger at the downtrend, line h.
    • The weekly starc+ band is now at $65.80 with the monthly starc+ band at $69.27.

    chart
    Click to Enlarge

    L-3 Communications Holdings (LLL) is a much smaller $7.3 billion aerospace/defense product and services company that also yields 2.6%. The long term downtrend, line a, was overcome last week.

    • There is next resistance at $80.68 and then at $84.92, which was the July 2011 high.
    • The price action has been confirmed by relative performance as it has also broken its downtrend, line b.
    • It is also positive that the RS line has overcome its prior high, line d, which confirms a bottom.
    • The weekly on-balance volume (OBV) has not yet confirmed the price action as it is still below its resistance at line e.
    • The monthly OBV (not shown) is above its WMA
    • There is weekly support now in the $72 area with monthly support at $68.80-$70.

    The daily chart of L-3 Communications Holdings (LLL) shows the upside breakout in September as resistance at line f was overcome.

    • The trading range, lines f and g, has upside targets in the $79-$80 area.
    • The daily relative performance bottomed in August and by the end of September was in a clear uptrend.
    • The downtrend in the RS (line h) was overcome on October 24, and it is now well above the June highs.
    • Volume has heavy last week as the OBV pushed above the resistance at line i.
    • There is minor support now in the $73.70 area with more important in the $71.50-$72 area.

    What it Means: The bullish action in these two defense related stocks suggests that they are likely to continue higher no matter who wins the election.

    Of the two stocks Honeywell International Inc. (HON) clearly looks the strongest as it has little overhead supply. L-3 Communications Holdings (LLL) is also expected to move higher, but there are several levels of resistance that need to be overcome.

    How to Profit: For Honeywell International Inc. (HON), go 50% long at $61.94 and 50% long at $61.42 with a stop at $58.22 (risk of approx. 5.6%).

    For L-3 Communications Holdings (LLL), go 50% long at $74.66 and 50% long at $73.82 with a stop at $70.18 (risk of approx. 5.4%).

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: HON, LLL, SPY, XLU
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