Question posted in the trading room last night which I figured that I’d respond to on the front page for all to see:

Randy when you get the chance some day, can you take a look at the US defense sector please (including stocks like LMT, GD, HON, BA, etc)? I am thinking this sector may be a good buy at some point if we can ever get a decent market correction, given how Trump and both parties seem to want to increase defense spending. Thanks

Actually, I just looked at them after watching the 7 minute condensed version of Trump’s speech the other night (on the NRP streaming app… a great resource for those with smart TVs or streaming devices like Roku, Apple TV, Chrome, etc..). Unfortunately, as his campaign vows to boost military spending were just as well know as his pledge to dismantle Dodd-Frank (regulation on the banks), the post-election ramp in the defense stocks nearly mirrors that of the bank stocks.

I’ve recently shared my views on the banks stocks, with the take that there is a good chance that nearly, if not all, of any benefits of a partial or even full repeal of Dodd-Frank has already been fully priced into the banks & possibly then some (i.e.- at this point they may have overpriced any potential benefits in the foreseeable future & are therefore, likely to correct). After reviewing the charts of the stocks that you mentioned above & many others, I hold the same view with the defense stocks.

This chart of ITA (iShares Dow Jones US Aerospace & Defense Index Fund ETF) clearly illustrates the effect of the Trump Pump, with both a sharp price increase along with massive volume immediately following the election. Also note that although there was a recent surge in volume over the last 3 trading sessions, obviously a result of his speech to congress, with prices initially rallying following the speech: A) they hardly rallied, relatively speaking and B) 100% of that rally was faded yesterday. To me, that reeks of retail (dumb money) buying following the speech & institutional (smart money) selling, as they were able to book some of their profits by selling into that surge of retail buying over the last few days. Just my 2 cent but I think that ship has already sailed, at least for now. My primary scenario for ITA is outlined here, with a potential move down towards the 141 area in the coming months, which could provide an objective long entry on the defense sector. The 131.30 level is my “if things get really ugly” target.

ITA daily March 2rd close

ITA daily March 2rd close