General Dynamics stock is trading near a historically bullish trendline
Shares of aerospace and defense firm General Dynamics Corp (NYSE:GD) were last seen trading at $276.84. Two-straight monthly losses has amounted to a quarterly deficit of 8.2%, aided in large part by a Nov. 14 6.9% gap lower in the wake of President-elect Donald Trump's proposed Department of Government Efficiency appointments. The good news is that this drawdown presents a unique buying opportunity, if past is precedent.
GD is within one standard deviation of its 320-day moving average. For the purpose of this study, Schaeffer's Senior Quantitative Analyst Rocky White defines this signal as trading above the moving average 80% of the time over the past two months, and closing north of the trendline in eight of the last 10 sessions before coming within striking distance of the trendline.
According White's study, three similar signals occurred in the past three years, and General Dynamics stock was higher one month after each occurrence, averaging a 5.3% monthly gain. A similar move from its current perch fill GD's 5.2% 30-day deficit.
Fueling the rebound case is the shares' 14-day relative strength index (RSI) of 11, firmly in "oversold" territory. In the options pits, short-term traders lean bearish, per the security's Schaeffer's put/call open interest ratio (SOIR) of 0.69, which stands higher than 92% of readings from the past 12 months.
A premium-selling strategy could be the right move, given GD sports a Schaeffer's Volatility Scorecard (SVS) of 3 out of 100. In other words, the stock has consistently realized lower volatility than its options have priced in.