So as of Thursday, it appears the Iran War is over. Again. Or maybe not. But soon. Maybe two weeks? Maybe this weekend? The mainstream press is not getting the clean, linear timeline they’d prefer. I have an idea for them, one I’ve used for decades. And frankly, how I came upon Barchart to begin with, many years ago, long before I was tapped to write here.
The one-two punch works like this: analyze via technical analysis a logical set of ETFs on a regular basis, jotting down the ones that look most bullish. Then look at that list of tickers and market segments those tickers represent, and craft a story around them.
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This has been at the core of my investing work since I started writing about markets in addition to managing other people’s money. Having retired from the latter six years ago, I’ve been able to hone my analytical skills. And what I find works quite well is to execute this “top-down” process. Once I find an ETF that looks interesting technically, the next step is to check the top holdings, using Barchart’s Flipcharts feature.
Importantly, I do this with the stock holdings ranked from biggest weighting in the ETF to smallest. That way, I can instantly see if the top stocks are likely to carry the ETF’s returns, or if there is more of a hidden opportunity in the stock holdings further down the list.
I’m covering the iShares U.S. Aerospace & Defense ETF (ITA) because it is a fairly rare situation in which that latter scenario is what caught my attention. ITA looks fairly average as an ETF. But a segment of its nearly 50 stock holdings stands out on the chart.
www.barchart.com Thus, even though the top 10 stocks comprise 75% of ITA’s total assets, only one of the top seven names is highlighted by me in yellow above as being a stronger-looking, standout chart. But the bottom three of the top 10 catch my attention. This is a signal that those stocks are likely undervalued versus some of the very largest, and that provides an opportunity to profit from what I’d call a “redistribution” among the top 10-25 holdings of the ETF.
www.barchart.com ITA: What the Mainstream May Be Missing
The core reason the casual investing public is missing this signal comes down to how ITA is constructed. It is a cap-weighted fund heavily dominated by a couple of massive, legacy aerospace and defense contractors. When these top-heavy anchors grapple with highly publicized corporate headwinds — such as high-profile quality control issues, production backlogs, or labor disputes — their individual stock charts turn ugly.
Because those few giants carry a massive point spread inside the ETF, their internal friction mechanically holds the entire fund back, creating the optical illusion that the defense sector is just chopping sideways.
But look past the heavy tails of the index and audit the broader roster. Underneath that camouflage, the pure-play defense technology firms, tactical munitions manufacturers, and advanced military electronics suppliers inside ITA are quietly breaking out of multi-month bases.
Which Defense Stocks Have the Best Charts Now?
They all look fairly similar, but I’ll highlight a couple of them here.
Raytheon (RTX) is easily the biggest, and the chart is showing some signs of what could be a 15% rally. A smooth, rising trend in the 20-day moving average is the key here.
www.barchart.com Lockheed Martin (LMT) looks like perhaps a step ahead, but the same type of pattern as above. There’s always the risk this is a one-day wonder, given Thursday’s 4% move. But I think the odds are there’s more to go here.
www.barchart.com The market’s current apathy toward regional conflict is setting a massive psychological trap. Wall Street will continue to ignore the headlines right up until the exact microsecond a physical supply shock or an impossible-to-ignore escalation forces global energy to violently gap higher. That is the exact moment the market’s illusion of safety breaks, triggering a fierce wave of headline inflation and a rapid, mechanical unwind across over-concentrated equity holdings.
When that dam finally breaks, the capital currently hiding in top-heavy tech momentum will frantically scramble for real-world, structural hedges. ITA, and particularly some of its top 10 holdings, is the ultimate beneficiary of that inevitable migration.
Of course, this has a very direct “story” to tell. The Iran War may not be as “over” as some recent headlines indicate. Not if these stocks are poised to rally.
Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob’s written research, check out ETFYourself.com.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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