With increased geopolitical worries threatening markets at every churn of the 24-hour news cycle, CNBC’s Jim Cramer wanted investors to be prepared for the next marketwide panic.
“What works here [is] not just in spite of these worries, but perhaps, in some cases, because of them,” the “Mad Money” host said on Tuesday.
Every time investors or analysts fret about President Donald Trump’s escalation in Syria and its potential ramifications, for example, it translates into good news for U.S. defense companies, Cramer said.
With that in mind, Cramer called on technician Rob Moreno, publisher of RightViewTrading.com and Cramer’s colleague at RealMoney.com, to help him get a sense of where the top defense stocks might be headed.
Boeing
The largest name in aerospace and defense, Boeing has major exposure to military-grade aircraft, rockets and more. Shares of the manufacturer rallied 130 percent between February 2017 and February 2018 before being dragged down in March.
After finding its floor of support, Boeing’s stock has been bouncing back. Moreno pointed out that it recently made a rounded bottom pattern, which helps technicians predict a stock’s future path.
When Moreno added the height of the rounded bottom pattern to Boeing’s ceiling of resistance at $340, he came up with a potential price target in the $360s. Unless Boeing’s stock breaks down below its $313 floor of support, Moreno was bullish on the uptrend.
“Moreno believes there’s a good reason to be positive here,” Cramer said, adding that Boeing’s Chaikin Money Flow oscillator, a tool that measures buying and selling pressure in a stock, is in positive territory.
“Boeing is only a few points away from breaking out to the upside,” Cramer said. “If the stock can rally $5 bucks from here, Moreno thinks the next $25 bucks could be smooth sailing.”
Northrop Grumman
The stock of Northrup Grumman, another big-ticket military hardware maker, has been outperforming Boeing’s in recent weeks thanks to its lack of exposure to the Chinese market.
Northrop’s stock has been stuck trading between $336 and $359 a share for the past few months. Moreno’s strategy was to look at the top of the range and use it to project where shares of Northrop might be headed.
“On a breakout to the upside, he could see Northrop Grumman going to $383. That’s up $28 bucks from where it’s trading,” Cramer explained. “On a breakdown, though, it could sink to $312 before finding another floor of support.”
For this analysis, Moreno looked at the Aroon indicator, a technical tool that uses a stock’s new highs and new lows to spot trend changes ahead of time. In late March, the Aroon indicator made a bullish crossover, telling Moreno that Northrop’s stock could be prime for a rally.
Raytheon
Moreno saw high-tech defense contractor Raytheon’s chart as the most bullish in the group.
Raytheon’s stock barely budged during February’s marketwide sell-off. After consolidating in March, it recently broke through its ceiling of resistance, hitting a new high on Tuesday.
“Moreno thinks that Raytheon could have a lot more room to run because it just broke out above a rising triangle pattern,” Cramer said. “He could see it rallying to the $245 area — that’s up $20 bucks from here — before this move runs out of steam.”
The stock’s Chaikin Money Flow was also very strong, indicating that deep-pocketed institutional investors were aggressively buying shares, the “Mad Money” host said.
“That’s why Moreno views this chart as a thing of beauty,” Cramer explained, adding that the moves made sense because of the strength of Raytheon’s missile defense system business.
Conclusions
“Bottom line? In this environment, I think the defense companies have a lot going for them, maybe more than any group of stocks in the entire chart book,” Cramer said. “The charts, as interpreted by Rob Moreno, suggest that they could have some nice upside here, especially Raytheon. But you also need to be aware of the risk here if something bad happens and they get slammed. However, in each of these cases, Moreno thinks the potential upside outweighs the potential downside.”
