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All Hail the King! Serve Him With Trembling! (LHX)

Posted on October 22, 2019

We’re turning back to the aerospace sector for today’s trade.

In a world of wars – hot, cold, economic and political – the missile makers are sure to be on the move.

Though some, like Boeing, in the wrong direction.

Be that as it may, our sonar picked up blip down in Florida last week – two ,actually: one registered as L3 Communications, the other as Harris Geospatial.  Seems they tied the knot over the summer and gave their outfit a fancy new name – L3Harris Technologies (NYSE:LHX).

And a big blip it was.

So big, in fact, the new company weighs in with a $45 billion market cap.  But more to the point, Wall Street also loved the new name – even decided it would create cost synergies (one sign out front instead of two), and raised price targets fast and heavy.

Only problem was the electronic warfare specialists at LHX couldn’t keep the short sellers and profit takers (and sonar gazers) off the trail.

The stock has done absolutely nothing for the last three months and looks ready to perform a Fibonacci face plant that could pull the shares lower than their pre-merger levels in a jif.

Have a look at the chart –

Technically, things look less than favorable.

Consider –

  • Three waves higher off last December’s low (in red) indicate the bull move that pushed the stock from $123 to $217 is now due for a break.
  • Additionally, we see strong resistance at the $215 level and a subsequent range bound meander between that level and support at $200 (in blue).
  • But over the last few days, we’ve seen a breakdown.  Price has dropped below $200, and because both RSI and MACD are now sub-waterline (in green), we’re going bearish on LHX for the intermediate term.
  • Our target price is calculated on a simple Fibonacci retracement, one that would bring the price down to either $190 or $151, respectively 10% and 25% below current levels.
  • We would add that there’s a gap to fill at the $170 level (in purple) that could invite a large cohort of shorts once the selling commences.

It’s with all the above in mind that we’re moving as follows –

We’re selling a CALL spread and using the proceeds to buy a PUT.

Like this –

A Jew and His Money Recommends you consider selling the LHX December 20th 210 CALL for $4.10 and buying the LHX December 20th 220 CALL for $1.80.  Then purchase the LHX December 20th 180 PUT for $2.65.  Total debit on the trade is $0.35.

With kind regards,

Hugh L. O’Haynew

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