'Catch a Falling Knife' to Buy Defense Stocks

The Boeing Company (BA) is a component of the Dow Jones Industrial Average, and the stock closed Monday at $335.59, up 13.8% year to date but in correction territory at 14.9% below its all-time intraday high of $394.28 set on Oct. 3. The company beat earnings estimates on Oct. 24, but post-report gains could not be sustained. Monday's slump to as low as $328.63 put the stock below its 200-day simple moving average of $348.35 on weakness caused by the Lion Air flight that crashed Monday after taking off from Jarkarta, Indonesia, which was aboard Boeing's new 737 MAX jetliner.

General Dynamics Corporation (GD) stock closed Monday at $167.04, down 17.9% year to date and in bear market territory at 27.4% below its all-time high of $230.00 set on March 9. The stock set its 2018 low of $164.76 on Monday. The company beat earnings estimates on Oct. 24, but the stock gapped lower nonetheless. General Dynamics shares have been below a "death cross" since June 8, when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices would follow. The stock could have been sold at its 200-day simple moving average at $205.77 on Oct. 9.

Lockheed Martin Corporation (LMT) shares closed Monday at $286.67, down 10.7% year to date and in bear market territory at 21% below the all-time high of $363.00 set on Feb. 16. The stock set its 2018 low of $283.21 on Monday. The company beat earnings estimates on Oct. 23, but the stock slumped anyway, even as the Belgian government ordered F-35A fighter planes. The stock opened above its 200-day simple moving average at $329.22 but quickly gapped below that level.

Northrop Grumman Corporation (NOC) stock closed Monday at $256.30, down 16.5% year to date and in bear market territory at 29% below its all-time high of $360.88 set on April 5. The stock set its 2018 low of $251.66 this morning. The company beat estimates on Oct. 24, but the stock declined anyway. Perhaps these defense names were hurt by the notion that orders from Saudi Arabia would be delayed or canceled. Shares of Northrop Grumman have been below a "death cross" since July 23, and the 200-day simple moving average was tested on July 24 at $322.07 as a selling opportunity.

The weekly charts below show value levels at which to catch these falling knife stocks.

The weekly chart for Boeing

The weekly chart for Boeing is negative, with the stock below its five-week modified moving average of $356.82. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 54.26, down from 63.48 on Oct. 26. Traders should consider buying Boeing shares on weakness to my semiannual value level of $286.66.

The weekly chart for General Dynamics

The weekly chart for General Dynamics is negative, with the stock below its five-week modified moving average of $186.72. The 12 x 3 x 3 weekly slow stochastic reading is projected to fall to 30.50 this week, down from 42.87 on Oct. 26. Traders could buy this stock at its 200-week simple moving average, or "reversion to the mean," at $170.73, which has been doable this week, and add to this position on weakness to my monthly value level of $154.31. My annual pivot is $188.88.

The weekly chart for Lockheed Martin

The weekly chart for Lockheed Martin is negative, with the stock below its five-week modified moving average of $318.13. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 45.71 this week, down from 59.96 on Oct. 26. My trading strategy is to buy this stock on weakness to my monthly value level of $280.58 and add to this position on weakness to the 200-week simple moving average, or "reversion to the mean," at $261.59. My annual pivot is $300.99.

The weekly chart for Northrop Grumman

The weekly chart for Northrop Grumman is negative, with the stock below its five-week modified moving average of $290.72. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 41.83 this week, down from 51.47 on Oct. 26. Traders could consider buying Northrop Grumman shares on weakness to my monthly value level of $238.04, which lines up with the 200-week simple moving average, or "reversion to the mean," at $238.26. My annual pivot is $278.68.