Lockheed Martin's new mega missile deal shows that global military spending is not slowing down — if anything, it is accelerating as conflicts persist. RTX getting a fresh bullish endorsement from a major bank like Morgan Stanley right after its earnings

Verdict: Wait for the Pullback — Strong Narrative, Untriggered Setup

The defense-spending thesis has real fundamental traction — both LMT and RTX generate free cash flow in the top 1% of Industrials peers, and RTX is steadily deleveraging with a debt-to-equity ratio down to 0.53 from 0.73 at year-end 2023. The 24-month LMT backtest is also genuinely impressive on its face: 22.1% return across 7 trades with an 85.7% win rate and a 9.5% maximum drawdown. But the strategy's entry rules are not live — both tickers have three of four conditions met, yet the RSI crossover from below 40 remains far away (57.9 for LMT, 60.3 for RTX), meaning the setup is waiting for a pullback that has not arrived. More concerning, LMT's gross margin sits at just 10.2% (12th percentile of peers), its debt-to-equity ratio stands at an elevated 3.05, and the backtest sample is extremely thin at 2 to 7 trades, so the headline win rates carry substantial statistical uncertainty. The idea earns its diversification ratio of 1.41 from a near-zero LMT-RTX correlation, but nearly all the basket's returns come from the RTX sleeve while LMT contributes primarily volatility drag with a 33.2% maximum drawdown over the full lookback. **Conviction Breakdown** - **Thesis Support (58):** The Barron's mega-contract headline and Morgan Stanley's RTX endorsement support the defense-spending narrative, and both companies rank in the top 1% for free cash flow, but LMT's persistent 10.2% gross margin and the basket's lopsided returns temper conviction. - **Trade Readiness (35):** Three of four entry conditions are met for both tickers, but the RSI crossover from below 40 is roughly 18 to 20 points away and no support-bounce has triggered, leaving no actionable signal. - **Risk Quality (45):** The 2.3% hard stop and 2:1 reward-to-risk framework are sound, but LMT's skewness of -4.20, its 3.05 debt-to-equity ratio, and the portfolio's expected max drawdown of 43.3% pose meaningful tail risks. - **Backtest Evidence (52):** The 24-month window produced a 22.1% return with an 85.7% win rate, but with only 7 trades and exit fills evaluated on entry-timeframe bars, the results are statistically thin and may overstate fill quality. - **Fundamentals Trend (55):** RTX's improving operating margin to 10.5% and declining leverage are genuine positives, while LMT's 89th-percentile revenue growth is offset by bottom-quartile gross margins and a thin 6.7% net margin.

Trade now

LMT closed at $572.71, already above its 50-day exponential moving average ($551.10) and its 20-day Bollinger band ($550.73) — two of the four entry conditions are comfortably met. ADX (14) is at 65.1, well above the required 20, confirming a strong directional trend. The missing piece is the RSI crossover: RSI (14) sits at 57.9, but the entry rule requires RSI to *cross above* 40 from below — a condition designed to catch a momentum reversal from oversold territory, not a continuation from already-elevated levels. That gap is 17.9 points wide, and the rule is marked far. For RTX the picture is similar: last close $215.22, above its 50-day EMA ($201.54) and Bollinger band ($208.06), with ADX at 61.7. RSI is 60.3, again well north of the 40 crossover trigger — distance is 20.3 points. Both tickers have three of four conditions satisfied but cannot generate a signal because the RSI crossover from below 40 has not occurred. The strategy also includes a support-bounce entry path (entry 3) that triggers when price touches the nearest support level and closes back above it. LMT's nearest support is $571.32 — just $1.39 below the current close — meaning a modest intraday dip could activate this alternative entry. RTX's nearest support is $210, roughly $5 below current price. The hard stop is set at a 2.3% loss from entry, with a take-profit target at 4.6% — an effective reward-to-risk ratio of approximately 2:1. In price terms on LMT near $572.71, that translates to a stop around $559.50 and a target near $599.20. "Wait" means do nothing today: the trend and strength conditions are live, but the momentum-reversal trigger has not fired and the support-bounce trigger has not been touched. Watch for a pullback that pushes RSI toward or below 40 and then crosses back above it, or a tag of the $571.32 (LMT) / $210 (RTX) support that holds on a closing basis.

Defense Demand Is Real — and the Backtest Captured It

The thesis hinges on durable global military spending, and the numbers partially support that narrative. Per the Barron's piece on the 'mega' missile contract, Lockheed Martin is landing major deals — and that is showing up in revenue. LMT reported $75.0B in revenue for…

Scores

• Conviction score breakdown: 49
• Thesis support: 58
• Trade readiness: 35
• Risk quality: 45
• Backtest evidence: 52
• Fundamentals trend: 55

Watch items

• LMT — RSI (14) — Crossover Entry
• RTX — RSI (14) — Crossover Entry
• LMT — Nearest Support Level
• RTX — Nearest Support Level
• LMT — RSI (14) — Overbought Exit
• RTX — RSI (14) — Overbought Exit
• LMT — Hard Stop Loss
• RTX — Hard Stop Loss
• LMT — Price above EMA (50)
• LMT — Price above Bollinger (20)
• LMT — RSI (14) crossed above 40
• LMT — ADX (14) above 20