Smith & Wesson Holding Corp. is currently overbought

Dec 14th, 2015 – Comment

Move higher fuelled by fear of legislation and terrorism


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SWHC LOGO

Hi Lou,

Could you give me your thoughts on firearm makers Smith & Wesson, Sturm Ruger, and Vista Outdoor?

Thanks,

Lyle

 

Hey Lyle,

Thanks for the assignment. I will undertake an analysis of Smith& Wesson Holding Corp. (SWHC NASDAQ) today and the others later in the week. SWHC manufactures and markets firearms and related products under different brands including M&P, Thompson/Center Arms, and Smith & Wesson. The company has been in business since 1852 serving clients in the military, law enforcement, and consumer markets.

SWHC has seen a spike in sales as the call for gun control pulls buyers into the market ahead of potential new legislation. The terrorist shooting in California has also catalyzed buyer interest.

An examination of the charts will provide the basis for my evaluation of this stock.

 

 

SWHC

The three-year chart indicates that 2015 has been very generous to investors who got on the ride as the stock started a new leg up. The spike to the 52-week high of $23.46 in December came on the heels of the shooting in San Bernardino, California. Worth noting are the buy signals generated by the MACD and the RSI in late November ahead of the terrorist attack.

When inspecting the details of the December surge in the stock price what is evident is the substantial increase in volume. Since December 7, 2015 daily volume has been five to seven times the average daily volume over the last three months. What we can also see on the chart is that SWHC is now overbought.

 

SWHC2

The six-month chart provides a close up of the dramatic move higher that transpired in December. What is also visible are the buy signals from the MACD and the RSI that surfaced in November.

Investors should be aware of the lack of support as the stock climbed to the 52-week high. The buying frenzy, although profitable, has created a situation where the short term gains could be at risk.

 

Next time I will undertake a study of Sturm Ruger &Co. Inc. (RGR NYSE).

 

Make it a profitable day and happy capitalism!

 

 

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