One of the most overlooked discount racks during yesterday’s big stock sale was the one located in the Defense department, where stocks from Boeing (NYSE: BA) to Triumph Group Inc. (NYSE: TGI) had pulled back to levels where traders have been more inclined to be buyers than sellers.
Much of that buying is on display in Wednesday’s trading, as shares of both BA and TGI are up more than 1% after multi-day pullbacks that had taken both stocks deeply into short-term oversold territory. Before Boeing’s midweek bounce, the stock had closed lower for five days in a row, the last two in technically oversold territory, losing nearly 6%. Shares of Triumph Group had traded lower in much the same fashion, selling off by more than seven and a half percent ahead of the stock’s Wednesday bounce of more than 2%.
Will the defense stocks continue higher? Among those stocks that have pulled back sharply over the past few days, none have yet rallied back into strength by, for example, closing above their 5-day moving averages or returning to technically overbought levels. As such, traders and active investors interested in the potential for continued upward movement in this sector may want to look at some of those defense stocks that, while perhaps no longer moving lower, have not yet attracted sizable numbers of buyers.
A potential example of this kind of stock might be General Dynamics (NYSE: GD). Shares of GD closed lower by less than a quarter of a point on Wednesday after pulling back for the past week (including two oversold closes on Monday and Tuesday). The stock has a positive edge in the short-term of more than three-quarters of a percent, and neutral ratings of 6 out of 10.
Shares of Esterline Technology (NYSE: ESL) have pulled back for three days in a row. But the bigger picture reveals a stock that has been under even more severe selling pressure. Since rallying to new, 6-month highs in late March, shares of ESL have closed lower for 11 out of the past 12 days (including the recent three-day sell-off).
The pullback in ESL has earned the stock a short-term, positive edge of 1%. And opening Wednesday morning with neutral ratings of 6 out of 10, shares of Esterline Technology were upgraded by one-point intraday, bringing the stock within one point of our “consider buying” category.
Although closing higher by more than three quarters of a percent, shares of Honeywell (NYSE: HON) are still trading far nearer to short-term lows than short-term highs, and could earn both significant ratings upgrades and positive edges in the short-term on any additional selling in the second half of the week.
Honeywell has a modest positive edge of a third of a percent ahead of trading on Thursday, and neutral ratings of 6 out of 10.
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David Penn is Editor in Chief of TradingMarkets.com