Aerospace and Defense (A&D) is a robust industrial sector. The main drivers that boosted this sector are commercial aircraft and defence. In one hand, manufacturers expect the jump from 14,000 to 38,000 commercial planes for the coming 20 years. In the other hand, increasing geopolitical tensions are rising the military equipment. In this post, we’ll analyse ITA, the A&D ETF ITA, and three stocks, Boeing (BA), United Technologies Corp (UTX), and Lockheed Martin Corp (LMT.)
ITA - The Aerospace & Defense ETF
The iShares US Aerospace & Defense ETF (ITA), is the tracker of Dow Jones U.S. Select Aerospace & Defense Index (DJUSAE). The ITA 4-hour chart shows a bullish sequence, which started on Dec 26, 2018. Once the first rally ended at $211, the price retraced and moved sideways finding buyers at $193.98. The price develops a potential impulsive move, which could reach the area between $218.91 to $221.77. The invalidation level for this scenario is $193.98. An alternative scenario occurs if the price doesn’t breakout and continues moving sideways. In this case, the formation corresponds to a complex structure.
Boeing - The flight will end soon?
Boeing (BA), the world’s largest aerospace company, shows high volume traded in the first move of the corrective sequence. This volume level compares to the first quarter of 2016 when the price started a bullish cycle. The high volume observed makes us suspect that this could be an ending move of the bullish cycle. In this case, we foresee the bearish completion in the area between $$332.50 and $316.50. After this move, BA should bounce to two potential targets; the first one is at $378.75, the second one is at $421.85.
Once completed the bounce, the US company could find sellers with the profit targets placed below the $300 level. The invalidation level of this scenario is at $446.01.
UTX - Trade war will boost to UTX?
The American conglomerate United Technologies Corp (UTX) is retracing the rally started on Dec 26 2018. The rally found buyers when the price touched at $100.48 and finished once climb to $144.40. The UTX daily chart could be developing a correction as an A-B-C pattern. The price could make a bullish move to $140 from where UTX should complete the AB segment.
Once completed the AB segment, UTX could drop in five moves with a potential target area between $122.75 to $115. The invalidation level is at $144.4.
LMT - Watching the potential breakdown
Lockheed Martin Corp (LMT), is an American aerospace, defence, security, and advanced technologies. As the same way that BA and UTX, LMT developed a rally from Dec 26, 2018, when the price found support at $241.18. In the big picture, LMT is developing a sequence of higher lows, which makes us value the possibility of exhaustion for the bull market.
In the short-term, for LMT, we expect a new high in the area between $344.20 to $348. From this exhaustion area, the price could make a new bearish sequence. The potential bearish targets are between $312 and $289. The invalidation level for this scenario is at $363.
The Conclusion
Long-term, we don’t expect new record highs for the Aerospace and Defense sector. Two clues make us suspect that the bull market could be ending, or is in an exhaustion zone. In one hand, the high volume shown by BA in the correction developed in the first quarter of 2019 opens the possibility to the end of the upward cycle. Despite the bounce expected on BA, the bullish move shouldn’t create a new record high.
In the other hand, the higher lows sequence on LMT provides us signals for a potential major degree connector that could be in progress.
Finally, we must consider that before pulling the trigger and start selling; the price action must confirm that the trend has changed.
Remember that the price is not compelled to move as our forecast implies. The charts released corresponds to the Elliott Wave Theory application.
