Active traders are constantly looking for market segments that offer shelter from market volatility and macro-level forces. One such group is collectively referred to as aerospace and defense. The barriers to entry in this sector tend to be quite high, and the scale of the leading companies can make them seem nearly impossible to compete against. In the paragraphs below, we'll take a look at three key charts and discuss why – based on the tenets of technical analysis – now seems like the ideal time to buy.
iShares U.S. Aerospace & Defense ETF (ITA)
With a total of 34 holdings and net assets of just over $5 billion, the iShares U.S. Aerospace & Defense ETF (ITA) is one of the most popular targeted funds available to express a sector view. More specifically, the businesses that make up the fund's holdings manufacture commercial and military aircraft and other defense equipment, and based on the pattern shown below, they look poised to make a significant move higher.
Notice how the 200-day moving average (red line) has acted as a strong level of support following the pullback in March. The bounce off of $196.83 has triggered a bullish crossover between the moving average convergence divergence (MACD) indicator and its signal line as well as between two major long-term moving averages. The crossover between the 50-day and 200-day moving averages is known as a golden crossover and is traditionally used by followers of technical analysis to mark the beginning of an uptrend. From a risk management perspective, stop-loss orders will likely be placed below the dotted trendline in case of a sudden shift in sentiment or fundamentals.
The Boeing Company (BA)
As you probably know, The Boeing Company (BA) has garnered its fair share of media attention over the past month, and the news has sent the price sharply lower. As you can see from the chart, the selling pressure seems to have waned over the past few sessions near the support of its 200-day moving average and dotted trendline. The price action combined with the bullish crossover between the MACD and its signal line suggest that the bulls are showing an interest again and that the pullback could be an opportunity to enter a position with a favorable risk-to-reward ratio. Many bullish traders will likely look to place their stop-loss orders below $356.92 in case the selling pressure picks up again.
United Technologies Corporation (UTX)
Another aerospace and defense company that could grab the attention of active traders is United Technologies Corporation (UTX). As you can see below, the price of the stock has found support near the 200-day moving average. The recent breakout shown by the blue circle and bullish MACD crossover suggest that the bulls are in clear control of the momentum. Traders will likely keep a close eye on the long-term moving averages because they look poised to cross by the end of the week. As discussed above, a golden crossover could be enough of a catalyst to send prices higher and mark the beginning of a long-term uptrend.
The Bottom Line
Bullish chart patterns across aerospace and defense currently make this one of the most closely watched sectors by followers of technical analysis. Long-term buy signals mixed with strong levels of nearby support offer lucrative risk-to-reward setups and could offer significant upside potential over the weeks and months ahead.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.