Selling Climax For Lockheed Martin

03/23/04 10:39:33 AM

by Arthur Hill

Extensive selling pressure in Lockheed Martin (LMT) over the last few weeks smacks of capitulation, but the long-term trend is clearly down with a head and shoulders pattern looming.

Security: LMT
Position: Sell

While the Nasdaq declined, Lockheed Martin (LMT) took up the slack with a stellar advance from Mar-00 to Jun-02. The stock moved from below 20 to above 70 with a rise that would make most tech stocks envious. With the Nasdaq finding a bottom in the second half of 2002, things began to change for LMT. The stock broke below the Mar-03 trendline enroute to the low 40s. A rising wedge formed from Mar-03 to Aug-03 and the lower trendline break signaled a continuation of the prior decline (71.5 to 40.64).

Figure 1: Lockheed Martin's weekly chart.

Graphic provided by: MetaStock.

Even though the last signal was bearish and the expectations are for further downside, selling pressure may have exhausted itself for a while. The decline over the last few weeks occurred on the highest volume in years (red arrow). It looks like capitulation or a selling climax, which usually signals an impending bottom or reaction low. Notice that the stock had another selling climax in Sept-03 (blue arrow) and this foreshadowed a reaction low. Furthermore, there is support in the mid-40s (gray arrows) and stock managed to firm around 44.

Figure 2: Weekly chart of Lockheed Martin.

Should buyers fail to materialize at support, further weakness with a move below 43 would be most bearish. Such a decline would break neckline support of a head and shoulders and project further weakness to the low 30s. Notice that the neckline slopes down as the stock formed lower lows over the last few months. These lower lows show increased selling pressure and make neckline support all the more important.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Selling Climax For Lockheed Martin

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