(Premium) Aerospace and Defense Driving Industrials
The relative pullback in Industrials has continued in April.
Things have deteriorated since Industrials put in a bearish momentum divergence relative to the rest of the market in January. Although the sector is still above a rising 200-day moving average, momentum recently dipped into oversold territory, and the 2021 highs will act as resistance on any rallies.
When we compare the equally weighted industrials vs. the equally weighted S&P 500, the picture brightens considerably. The average industrial stock is still doing better than the average stock in the S&P 500 index, even after the pullback in recent weeks.
We’re seeing the most strength within the Aerospace & Defense space. The S&P 500 sub-industry is challenging its pre-COVID highs for the third time this year, and we think a breakout is imminent.
Raytheon is already above that 2020 peak and is on the verge of new 52-week highs. We want to be long RTX if it’s above 100 with a target of 132. That’s the 161.8% retracement from the COVID selloff.
Transdigm is one we’ve liked for awhile and it continues to work. It just broke out to new highs after battling the 2020 peak for most of the last 2 years. Now that it’s above 670, we want to be buying it with a target of 930, which is the 161.8% retracement from the COVID collapse.
How about the huge 10 year base in Howmet Aerospace? This isn’t a short-term idea (we’re looking at weekly bars on this chart), but above 40, we like it all the way up to 70. Of course, after 10 years of going nowhere, 70 could just be the start.
We’ve been talking about General Electric for a couple months now, and it keeps moving higher after breaking out of its own huge base. GE dropped 80% from 2016 to 2020 and got booted from the Dow Jones Industrial Average along the way. Sentiment couldn’t have gotten much worse, so there are surely a lot of folks still on the sidelines. We like it above 90 with a target of 145.
Moving outside of Aerospace, Cintas is shaping up nicely. It’s threatening to set new all-time highs after 18 months of going nowhere. We want to be buying CTAS if it gets through the 2021 highs with a target above 590. That’s the 685.4% retracement from the 2018 selloff.
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