General Dynamics has further to fall ($GD )

Defense Sector  Overview
A quick trip around the defense sector and its pretty easy to see that the major defense contractors like $LMT, $NOC, $GD, and $RTN have hit some turbulence over the past 4-6 months.  Lots of double tops have executed and most of these names now find themselves under their declining 200dma’s and with substantial over head resistance.

Here is a daily chart of $DJUSDN, the Defense Industry group.
It serves as a good snapshot of what is happening. Price below the 200 with downtrend resistance and overhead resistance above.  Sure the momentum and RSI have turned up with the recent bounce, but I believe the overhead resistance right here , right now will prove to be too much to overcome.  Certainly a tough place to take a shot on the long side in my opinion.

General Dynamics – A clean look at an objective short
The same general picture holds for $GD as mentioned above, but here, at least to my eye, is a clean look at an objective short with a stop near by.

Here’s what I see:

  • Price failed at $193, declined to $185, and now is back-testing $193. This is a classic bearish set up
  • Overhead resistance at $193 stretches back over a year; seems like a breakout here will be tough.
  • Adding to the resistance is the downtrend line just above.
  • The $193 back-test also corresponds to a 38.2% Fib bounce; a common reversal point
  • Price probed above $193 today and was rejected.
  • Relative performance of $GD is simply terrible.  Shown in the lower 3 panels, $GD is under-performing both SPY and its peers within $DJUSDN.  The group is obviously under-performing SPY as well.  Nothing bullish here.
  • PPO momentum and RSI are pointed up but I believe the price action and technical set up favor a down move from here.

Conclusion

  • Could $GD break out this week?  Sure, anything is possible.
  • The preponderance of the evidence however, looks bearish to me. 
  • The fly in the ointment is earnings due out July 25th. I’m not willing to hold options through earnings. That only gives 2 weeks. Not a lot of time.
  • But, Given futures are well into the red at 8pm Tuesday night, and with Trump wandering around NATO, 2 weeks might be a lifetime.  Tough call.

The Trade

  • If I were to give this a shot, I’d target the Jul 27th  $192.5 P 
  • My stop would be $194….a short leash. 
  • I would close the trade prior to earnings on the 25th.

Disagree?
That’s what makes markets.  I’d love to hear your thoughts
Shoot me a note at [email protected] or leave a comment. 

Annotated Daily Chart of $GD  HERE

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