Reports of a Russian troop buildup on the border of Ukraine—the largest mobilization since Moscow's 2014 takeover of Crimea—began hitting the news in late March 2021. Savvy investors have been bidding up defense contractors ever since.
After last week's Russian invasion of Ukraine finally began, it's likely we'll see aerospace and defense sector shares, such as Raytheon (NYSE:RTN) Technologies (NYSE:RTX) jump to new highs, riding an upleg that began in April 2021.
However, there are a number of company-specific fundamentals that could weigh on the Waltham, Massachusetts-based industrial firm, including its claim to being a target of the DOJ regarding hiring practices in the aerospace industry. As of Feb. 21, 2022, China placed sanctions on Raytheon and competitor Lockheed Martin (NYSE:LMT), over arms sales to Taiwan.
Still, the recent escalation of hostilities toward Ukraine by Russia has boosted defense contractor shares, including Raytheon stock.
On Friday, the stock jumped more than 4%. It's up an additional 6% at the time of writing in Monday's pre-market trade. The move was the upside breakout of a falling flag, bullish after a rally that lasted for eight out of nine days.
The flag slumps as bulls cash out, allowing new bulls who missed the first leg higher to come in and carry the next move even higher. The upside breakout also penetrated the top of a rising channel, increasing the odds of a steeper rally to come.
Trading Strategies
Conservative traders should wait for the price to perform a return move, retesting at least the flag, which would coincide with the bottom of the green channel, if not the bottom of the earlier yellow channel.
Moderate traders would wait for a dip for a better entry if not for further confirmation.
Aggressive traders could enter a contrarian short, with a close stop-loss, to take advantage of a return move after a sharp spike before joining the rest of the market with a long position. Money management is critical. Here is an example of a basic trade plan:
Trade Sample – Aggressive, Contrarian Short Position:
- Entry: $103.50
- Stop-Loss: $104.50
- Risk: $1
- Target: $98.50
- Reward: $5
- Risk-Reward Ratio: 1:5
Author's Note: First, the trade sample above is not the full analysis. That's in the body of the text. Second, a sample simply provides one way of handling the trade, which could have many other approaches. We're merely trying to illustrate how to write a basic technical trading plan. Ultimately, we're not in the fortune-telling business. Rather we're simply arriving at an opinion based on our subjective interpretation of the supply and demand dynamics of technical analysis.
A trader's objective is not to win on an individual trade but to do well overall via statistics. Before you start trading imagine you've lost the funds you intended to trade. If you can't handle that, do not trade. The successful trader needs to learn to write a plan that incorporates their timing, budget, and temperament. Until you're able to do that, use our trades for practice, but not with the expectation of profit, otherwise you'll end up with neither...and there's no money back. Guaranteed.