An inverse head and shoulders pattern has formed on the weekly Lockheed Martin (LMT) chart, and shares are testing neckline resistance. A breakout could power a return to the highs made earlier in the year.
In 2017 LMT saw a 60% increase in its share price, making a high in February of this year. But the highs in February were part of a large bearish eveningstar pattern on the weekly chart that initiated a reversal in the stock price.
An eveningstar formation is made up of a large white candle, followed by a narrow opening and closing range doji candle, and completed by a large dark candle. It represents a transition in sentiment from bullishness to bearishness and is often seen at important tops.
Following the eveningstar there was one final attempt to make a new high in April but then Lockheed shares moved back below their 40 week (~200 day) moving average. They eventually retraced 50% of their 2017 gain.
The subsequent bottoming process just above the 50% retracement level at $290 has developed into an inverse head and shoulders pattern. Neckline resistance is located at $327.50 and is being reinforced by the 40 week average.
Moving average convergence/divergence has made a bullish crossover reflecting positive short term price momentum and trend direction. Chaikin money flow has been moving higher since the inverse head low was made in July, and is attempting to enter positive territory. This suggests early buying interest in the stock.
Lockheed shares are currently retesting the neckline of the inverse head and shoulders formation. If they were to break through that resistance, the pattern’s measured move, which is calculated by taking the height of the pattern and adding it to the neckline, targets the old highs made at the beginning of the year.
This would constitute a 10% move which would return them to the $360 area.