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Certain industries see their stocks rise and fall with the political climate in the U.S. We have seen health care stocks fall when universal health care has been in the political spotlight, like it was in 2008 and again in the last nine months. Coal companies have been crushed in recent years as the political climate remains focused on clean and renewable energy.
Gun manufacturing is another industry that seems to cycle with the political climate, and there isn’t a more well-known gun manufacturer than Smith & Wesson (NASDAQ: SWHC). There has been a lot of rhetoric about gun control over the last eight years, but the fact of the matter is that Smith & Wesson stock has performed incredibly well as the debate heats up. The stock is up over 800% since the day President Obama took office.
Moving away from the political angle, Smith & Wesson looks like it is ready to move higher again after falling almost 30% from its all-time high a month ago.
Looking at the daily chart, we see a trend line that connects the lows over the last eight months. We also see that the stock was in oversold territory based on the daily stochastic readings and the 10-day RSI, with the stochastic readings making a bullish crossover Monday. The last time we saw a bullish crossover from the daily stochastic readings the stock almost doubled in the next two months.
Looking at the weekly chart for Smith & Wesson stock, we see another trend line that connects the lows from the beginning of 2015. It’s resting right at $21 presently. The weekly oscillators aren’t in oversold territory, but they are as low as they have been in the last 16 months.
Looking at the sentiment toward Smith & Wesson, we see a modest short interest ratio of 2.67. There are only nine analysts following the stock and five of the nine rate the stock as a “hold,” with the other four rating it as a “buy.” The company reported earnings back in March and the actual earnings per share was $0.59 while the consensus estimate was $0.39. Rarely do we see a stock slump like Smith & Wesson has after blowing out on its earnings report.
Gun sales jump when the call for gun control heats up and they fall as the rhetoric slows down. So it is actually good for Smith & Wesson stock when the politicians keep guns at the forefront. But regardless of the political climate, I think Smith & Wesson is ready to move higher again, mostly due to the two trend lines.
If you own Smith & Wesson stock you have to be prepared for cyclical swings, but I see the stock moving up to at least the $30 level again over the next six months. Should the stock fall, I would use a close below the 52-week moving average as a stop-loss point.
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