Stocks of gun manufacturers have sold off since the U.S. presidential election, despite continued worries about politically motivated violence. The two publicly traded companies most strongly levered to firearm sales were bid up ahead of Tuesday, posting two-month highs while market players speculated about the aftermath of a contested election. That reality has now come to fruition, but these issues are still having trouble finding new shareholders.
Sadly, it will take just a spark to set these issues on fire again, with rhetoric turning more violent as we head into the weekend. Twitter, Inc. (TWTR) just banned former White House chief strategist Steve Bannon permanently from the service for calling for the beheading of Dr. Anthony Fauci and FBI Director Christopher Wray. At the same time, crowds of protesters have formed at polling centers that are still counting ballots, raising the potential for chaos.
Speculation, or speculative trading, refers to the act of conducting a financial transaction that has substantial risk of losing value but also holds the expectation of a significant gain or other major value. With speculation, the risk of loss is more than offset by the possibility of a substantial gain or other recompense.
Smith & Wesson Brands, Inc. (SWBI) is the world's best-known firearms manufacturer, founded in Springfield, Massachusetts, in 1852. The stock broke out above the 2007 high in the upper teens at the start of 2016, highlighting tensions that eventually led to the presidency of Donald Trump. The rally posted an all-time high at $23.96 three months before that election, giving way to a topping pattern that broke to the downside in the second half of 2017.
Sellers held firm control into November 2019's seven-year low at $4.16, giving way to a rally, followed by a successful test of support during the first quarter's pandemic decline. The stock broke out to a new 2020 high in June and took off in a momentum-fueled advance, stalling less than two points under the 2016 peak in August. The subsequent downturn ended at the 50-day exponential moving average (EMA) in September, settling into a narrow trading range ahead of the election.
The stock posted the highest-volume selloff day since 2017 on Wednesday, slicing through the 50-day EMA. It traded back into that level on Thursday and has ticked higher overnight, while the majority of Americans hold their collective breaths, waiting for the dark clouds to pass. Bears hold a major edge following the mid-week distribution event, which could also predict that better days are just ahead.
Sturm, Ruger & Company, Inc. (RGR) completed a round trip into the 2007 high just above $20 in the second quarter of 2011 and broke out, lifting to $85.93 in January 2014. The stock then eased into a broad trading range, bounded by resistance at the high and support in the mid-$30s. A 2016 breakout attempt came up short, giving way to a slow-motion decline that tested range support successfully in the first quarter of 2020.
The stock mounted the first quarter high in May, entering a strong uptrend that broke out above 2014 resistance in August. It posted an all-time high at $90.74 a few weeks later and reversed, failing the breakout while reinforcing resistance in the mid-$80s. Price action settled on the 50-week and 200-day EMAs in September and entered a holding pattern, also posting a high-volume selloff day on Wednesday. Even so, there's little evidence of a developing trend in either direction.
A trading range occurs when a security trades between consistent high and low prices for a period of time. The top of a security's trading range often provides price resistance, while the bottom of the trading range typically offers price support.
The Bottom Line
Shares of gun manufacturers sold off on Wednesday, in anticipation of a peaceful transition in power, but recent events raise doubts about that optimism.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.