The price of the shares of aerospace and defence companies have moved up sharply since the March lows, which is a theme that is not uncommon. However, with that said, the recent price action close to the major levels of support combined with the high barriers to entry necessary for the competitiveness to make this sector one to watch over the coming weeks. In this article, we will take a look at a few examples of maps of the sector as a whole and try to determine how the traders are going to be looking to trade in the upward movement.
SPDR S&P Aerospace and Defense ETF (XAR)
Traders often turn to popular exchange-traded products like the SPDR S&P Aerospace and Defense ETF (XAR) when we try to analyze the niche sectors such as defence. As you can see on the chart, the price has been trading in a period of consolidation, as shown by the horizontal trend lines, since the stabilization of the March sale.
Traders will also want to note that the break higher in May has sent the price above the key resistance of 200-day exponential moving average, which is an indicator that suggests that the bulls are back in control of the long-term momentum. Uptrend, traders will be more likely to seek to enter in orders that almost 93.84 as possible in order to optimize the risk/reward. Some traders may want to stay away a little longer to see if the 50-day moving average will cross above the long term average, which would be likely to act as a catalyst for a flood of buy-stop orders.
Axon Enterprise, Inc. (AAXN)
As the top of the holding of the XAR ETF, Axon Enterprise, Inc. (AAXN) will probably be on the radar of many traders. As you can see on the chart below, the price has recently broken above the resistance of a triangle pattern on higher than average volume.
The break above $90 suggests that the bulls are in control of the amount of movement, and many are in the process of setting their target prices near$ 130, which corresponds to the entry point plus the height of the model. From a risk management perspective, stop-loss orders will probably be placed below one of the levels of support, depending on risk tolerance and investment horizon.
Mercury Systems, Inc. (MRCY)
Another top holding of the XAR ETF that can capture the attention of active traders is the Mercury Systems, Inc. (MRCY). As you can see below, the stock price is near the 50-day and 200-day moving averages, which suggests that the risk/reward is clearly in favour of the bulls.
Recent price action has also triggered a bullish crossover between the long-term moving averages, which is a common buy signal, which is used by followers of the technical analysis to signal the beginning of a great upward movement. Stop-loss will probably be placed below $77.29 to protect against a sudden change in the feeling or the underlying fundamentals.
The Bottom Line
The majority of asset classes have rallied strongly since the March lows. As we discussed above, a group that could be of particular interest over the coming weeks and months is aerospace and defence. Graphics in the sector as a whole show a profit risk/reward setups due to the long-term support, moving averages, and the major trend lines.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.