Lockheed Martin Corporation (LMT), the military defense contractor, looks like it could be set for a breakout in the coming weeks. The stock has been pegged between two key levels – a falling resistance level and a rising support level. This wedge pattern is narrowing, setting up the potential for a major breakout for shares of the defense giant.
Lockheed's share price has been consolidating around $380 in the weeks leading up to the election. A soft earnings report on Oct. 20 sent shares back to the bottom of the wedge pattern, but the latest election-fueled rally has the stock rising again.
When we look at the stock using the Relative Rotation Graph approach, we see that the stock is expected to head higher. The Relative Rotation Graph, or RRG, combines the relative strength of the stock to the S&P 500 with momentum to create a unique view on the stock.
It shows that stocks rotate from leading the overall market to weakening as the momentum slows and eventually lagging the market before improving as momentum picks back up to come back to leading the market once again. It's a rotation that almost all stocks go through on a constant basis.
In the chart below, I shaded the different areas of the rotation and added the RRG lines underneath so you can see the ratio line (solid red line) and momentum line (dotted green line).
You can see the key trendlines that form the wedge pattern, with the red resistance line and green support line. Then we have the stock that is going from lagging (red bars) to improving (blue bars). The next step is to lead the market, and that could be enough to push it above the red resistance level on the chart in the coming weeks.
The RRG lines on the bottom of the chart show that the decline in early July was worse than the overall market, causing the solid red line to dip sharply. But the latest decline was better, relatively speaking. It's a higher low on the RRG lines and a higher low for the price chart. I'm looking for the stock to continue climbing from here and eventually break out to the upside of the wedge formation.
The Bottom Line
Lockheed Martin stock was in a period of wait-and-see before the election. Now that this major event is actively playing out, it could release shares to break out higher from this wedge pattern. Based on the Relative Rotation Graph, now is the perfect time to jump in. Lockheed Martin stock is rotating from lagging to improving, and leading the market is the next move that it could make.