Investors are constantly on the lookout for sectors that provide shelter from volatility while also offering a lucrative amount of upside. Commodities, utilities, and financials have trended higher on this tendency so far in 2019, but based on the chart patterns discussed in the paragraphs below, another sector that could be worth a closer look is aerospace and defense.
Invesco Aerospace & Defense ETF (PPA)
Retail investors who are interested in buying into niche sectors often turn to exchange-traded products such as the Invesco Aerospace & Defense ETF (PPA). As you can see from the chart below, the price of the fund has been trading within a defined channel pattern for most of 2019. Active traders will likely look to buy near the combined support of the lower trendline and the 50-day moving average and sell when the price rises toward the resistance of the upper trendline. Based on this pattern, trend traders would expect the bulls to remain in control of the momentum and would not bet on a reversal until there were several closes below the aforementioned support near $66.51.
L3Harris Technologies, Inc. (LHX)
One of the leading companies in the aerospace and defense sector and top holding of the PPA ETF is L3Harris Technologies, Inc. (LHX). As you can see from the pattern below, the price is trading along a well-defined trendline, which has provided support on each attempted sell-off so far in 2019. Based on previous price action, followers of technical analysis would expect this trend to continue for the remainder of 2019 and into 2020, and they would likely look to protect against a sudden shift in sentiment by placing stop-loss orders below $207.
Lockheed Martin Corporation (LMT)
One of the most well-known companies within the global aerospace and defense sector is Lockheed Martin Corporation (LMT). With a market capitalization of approximately $110 billion, the company represents a scale that can seem nearly impossible to compete against. Taking a look at the chart, you can see that the price is trading within a defined range and that the lower trendline and the 50-day moving average have acted as consistent guides for trend traders looking for entry levels. Based on this chart, traders will likely expect the uptrend to continue, and most will likely place stop-losses below $375 in case of a shift in fundamentals.
The Bottom Line
Uncertainty and increased volatility seems to have been the name of the game in recent months, and segments such as financials, utilities, and precious metals have been major beneficiaries so far. Based on the patterns discussed above, it looks as though aerospace and defense could be another sector to watch.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.