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BREAKOUTS


A Breakout For Lockheed Martin

08/03/07 08:59:49 AM
by Arthur Hill

Lockheed Martin reversed a multimonth decline with a breakout over the last few weeks, and renewed relative strength points to higher prices.

Security:   LMT
Position:   Accumulate

On the daily chart (Figure 1), Lockheed Martin (LMT) peaked in February and began a long corrective process. The previous advance lasted from June 2006 to February 2007 and extended from 70 to 103.4. Some sort of correction can be expected after an eight-month advance that gained almost 50%. The correction started with a sharp decline in late February and the stock then traded flat from March to June. The pattern looks like a falling price channel and the stock found support at the 200-day moving average in late June.

FIGURE 1: LMT, DAILY. Lockheed Martin peaked in February and began a long corrective process.
Graphic provided by: Telechart 2007.
 
LMT surged above channel resistance with a big move in July, and this breakout signals a continuation of the prior advance. This move was around 50%, and another 50% from the channel low (~93.5) would project a move to around 140 over the next few months. In addition to the channel breakout, the price relative above broke above its May high and the stock is showing relative strength again. The price relative shows the performance of LMT relative to the Standard & Poor's 500. The indicator declines when LMT lags and advances when LMT leads. The breakout signals renewed leadership, and this is bullish.

FIGURE 2: LMT, 60-MINUTE. After breaking resistance at 100, the stock pulled back and broken resistance turned to support.
Graphic provided by: Telechart 2007.
 
Since breaking resistance at 100, the stock pulled back and broken resistance is turning into support. The surge above 107 created a short-term overbought condition, and the decline in late July alleviated this condition. This surge and pullback are captured well on the 60-minute chart (Figure 2) and the decline formed a falling wedge over the last few days. These are typical for corrections, and a break above resistance would signal a short-term continuation higher. The first target would be the July high and a move below the wedge low would negate the breakout.



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.

Title: Editor
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E-mail address: arthurh@tdtrader.com

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