SWHC Analysis 04/07/2009

The SWHC analysis you'll find below is based on a stock I have been following for quite some time now (since late October 2008), Smith & Wesson.

Back in late October 2008 I was concerned that gun regulations may become a priority of lobbyists and may hurt the stock price of SWHC due to a possible decrease gun sales.

I also felt that the economic and financial situation was so bad that the U.S. government would have to put this issue on the back burner and spend their time and efforts on the economy for at least a year, if not more, before they tackled any gun issues.

What happened since then, is that a possible decrease in gun sales has been a concern to the public, but this concern has fueled large amounts of gun and ammunition sales in the near term. The fear of not being able to buy a gun if needed and the continued economic decline since I began following this stock, has caused a very large percentage move in shares of SWHC.

Also, as we all know, the U.S. government along with governments across the globe have been busy spending all of their time working on the economy and financial catastrophe. This has also led to an increase in gun sales. Sort of like a "Get 'em while you can, sale".

I decided to provide this update because as I read the news lately, I have repeatedly come across news articles regarding people who are upset or angry about current economic or financial situations and killing people with guns. These recent occurrences made me take another look at SWHC.

Since late October, 2008 the stock price has gone from around $1.50 per share to yesterday's closing price of $5.70. While I cannot say for sure which way the stock price will move in the coming days and weeks ahead, I will show some charts and levels I feel may be key to watch. Let's take a look at some charts below:


The first chart below illustrates a lot of useful information, not just in analyzing SWHC, but in helping everyone to learn some idea's of what to look for in a potential stock on the rise:

SWHC analysis

The first thing you will notice is that in the days right before the U.S. Presidential Election in November 2008, the price of this stock just about doubled in a few days. This was most likely the first sign of what I mentioned above, the fear of not being able to buy guns, and last minute panic buying.

From then, and up until almost March 2009, you will notice that the stock price moved up and down, never breaking through the initial high in early November 2008, but also making higher consecutive lows. This formed a recognizable chart pattern called an "Ascending Triangle". The end of an Ascending Triangle has a high probability of breaking out to the upside, which it did in this case.

The next few things you will notice is that I have added Fibonacci Retracement levels and each move higher, met up with resistance and support, at several of these levels.

Finally, you will see that the stock price moved through the 100% retracement level I have drawn on the chart, and has since pulled back from the high. You'll also notice that it has pulled back to it's 20 Day Moving Average (the red line).


Here are a few more charts with some support and resistance levels shown on the charts that I have added:

SWHC analysis 1

SWHC analysis 2

SWHC analysis 3

SWHC analysis 4
  • There is a downward sloping short term trend line noticed on the first black chart above, which should provide some resistance currently near $5.70-$5.80. A move up through this level though, may trigger buying on a breakout trade.
  • On the second black chart, you'll notice another resistance level near $6.00, which should also provide "round number resistance". If a move does occur through the $6.00 level, the next resistance level higher is near $7.00.
  • Looking at the third and fourth black charts, if SWHC makes a move lower through $5.50, additional selling could occur with the next lower support level near $5.00.
  • You'll also notice on the fourth black chart that I have drawn the 10 and 20 Day Moving Average lines on the chart. For the last several trading sessions, the price has stayed pretty much between these two lines, and again it appears any move below $5.50 may indeed trigger more selling.

As I mentioned at the beginning of this page, I am not sure if SWHC will be moving higher or lower from here for sure, but there are arguments to consider for either direction. A move higher may be considered if additional panic buying of guns continues, which it may indeed. Also, if the major market's move higher, there may be a possible move higher due to the "rising tide of stocks".

The arguments for a possible move lower are worth considering also: The recent gun news in the media; the stock moving too much too fast; a possible further breakdown in the technicals showing up on the chart itself.

I feel the final trigger for this stock to move lower will be too much bad publicity on guns in the news and/or a mention of a move towards potential gun regulation in the future. As always though, please do your own research to come up with your own trading and investing decisions as I am not a financial advisor. All of the analysis and examples on this website are my personal opinions only, not recommendations to buy or sell securities:)


I am adding the following updated chart to show how SWHC has moved since I added this page. You can see that the stock price broke through the $5.70 price level initially on April 8th, and then pulled back only to break through again later the same day. Looking back, you can see that this double breakout attempt was a sign of strength, not weakness in the stock.

This morning, the stock opened higher with the rest of the markets, breaking through the next resistance level at $6.00 and moved higher to the next previous resistance level, breaking through it also. Any move higher in the general markets from here may provide enough buying in SWHC to move higher towards $7.00.

SWHC




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