Raytheon Technologies Corporation (RTX) reported better-than-expected earnings per share on July 28. The stock dropped to as low as $55.73 on Aug. 3 and then popped to $66.15 on Aug. 11.

Raytheon Technologies is the second largest aerospace and defense contractor. It's the combination of United Technologies and Raytheon. The new company is a component of the Dow Jones Industrial Average and does not include Otis Elevator and Carrier Corporation, which were owned by United Technologies but were separated in the first half of 2020.

The stock closed Wednesday, Aug. 12, at $64.29, down 27.2% year to date and in bear market territory at 31.2% below its Feb. 11 high of $93.44. Raytheon Technologies is also in bull market territory at 57.9% above its March 18 low of $40.71. The company is reasonably priced with a P/E ratio of 10.15 and a dividend yield of 2.95%, according to Macrotrends.

The daily chart for Raytheon Technologies

Daily chart showing the share price performance of Raytheon Technologies Corporation (RTX)
Refinitiv XENITH

The daily chart for Raytheon Technologies is consolidating a bear market decline of 56% from its Feb. 11 high of $93.44 to its March 18 low of $40.71. The stock failed to hold its semiannual pivot at $84.74 on Feb. 25.

Raytheon Technologies stock has been below a death cross since March 23, when the 50-day simple moving average (SMA) fell below the 200-day SMA. This was confirmed after the stock set its low.

On the V-shaped bottom, the stock returned to its 50-day SMA on April 28. After dipping as low as $51.13 on May 14, the stock popped toward its 200-day SMA. The stock failed below this key moving average at its June 8 high of $74.93 and then dipped to $55.73 on Aug. 3.

Raytheon Technologies stock is below is holding its 50-day SMA at $62.89 but is well below its 200-day SMA at $72.85. This lines up with its quarterly risky level at $72.70.

The weekly chart for Raytheon Technologies

Weekly chart showing the share price performance of Raytheon Technologies Corporation (RTX)
Refinitiv XENITH

The weekly chart for Raytheon Technologies is neutral, with the stock above its five-week modified moving average of $61.60. It's below its 200-week SMA, or reversion to the mean, at $72.87.

The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 37.09 this week, down from 40.14 on Aug. 7. Note that, during the week of Jan. 17, this reading was 90.00, putting the stock in an "inflating parabolic bubble" formation, and that led to the 56% bear market crash.

Trading strategy: Buy Raytheon Technologies stock on weakness to its five-week modified moving average at $61.60. Reduce holdings on strength to its quarterly risky level at $72.70. 

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each level uses the last nine closes in these time horizons.

The third quarter 2020 level was established based upon the June 30 close, and the monthly level for August was established based upon the July 31 close. New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by a gain of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.