Unless you’ve been hiding under a rock, you’re aware that there’s been growing tension between the U.S. and Iran.
It started when President Trump ordered a strike that killed a top Iranian general.
Iran then threatened revenge on the U.S.—firing missiles at multiple bases housing American troops in Iraq (with no reported casualties, thankfully).
However, Trump was basically filing his fingernails, tweeting this and saying Iran is “apparently standing down”:
And while the S&P 500 initially plummeted after-hours on news of Iran’s retaliation Tuesday night, it ultimately bounced back yesterday to hit record highs.
And based on this morning’s action in the futures, we’re headed for another all-time high in stocks.
Something tells me that this story is far from over.
That said, I’ve put together a sector watch list—that could be active during these trying times.
Airlines
Airlines are sensitive to fuel prices, for obvious reasons.
So when oil prices jumped late last week on the Iran general news, shares of the US Global Jets ETF (JETS) took a hit.
The fund recently marked its lowest close since October, in fact.
However, when we zoom out a bit, we find that JETS has been struggling to make a strong stand above the $32 level since early February 2018.
Rejections here have been met with support in the $27.50-$28 area.
Only time will tell if the exchange-traded fund (ETF) will make another pass at resistance near $32, or if this is the start of another retreat to a familiar floor.
It’s also worth noting that several airlines will begin reporting earnings soon, including Delta (DAL), which will report next Tuesday, Jan. 14.
The next round of quarterly figures, along with oil prices, could determine if JETS takes off or suffers more turbulence.
Meanwhile, Boeing (BA) is making headlines of its own.
Yesterday, the stock took a hit after a Boeing 737 fatally crashed in Iran, shortly after the aforementioned attacks on Iraqi bases of U.S. troops.
The cause of the downed plane has yet to be determined (Iran attributed it to a technical failure before the plane even stopped smoking), but Boeing is no stranger to crashes — the 737 MAX is still grounded after a pair of fatal crashes in 2019.
In addition, several analysts took aim at Boeing stock yesterday, including Cowen, which downgraded BA to “market perform” from “outperform.” The brokerage firm said it expects the airline company to announce additional 737 MAX-related costs when it reports earnings later this month.
Boeing stock has spent the past several months bouncing along support in the $325 area, which represents a 78.6% Fibonacci retracement of the security’s quick-and-dirty rally from late 2018 to its early March high.
And considering BA has been making lower highs since September, I’ll be watching to see if this emerges into a full-blown descending triangle pattern — one of the bearish screens I run for my services.
Defense
Boeing is also considered a “defense” stock — that is, a stock with military ties.
When geopolitical tensions get heated, it’s not too surprising that companies supplying the U.S. military will see their shares get a boost.
Among the top holdings of the S&P Aerospace & Defense ETF (XAR) are Lockheed Martin (LMT) and Northrop Grumman (NOC).
After a banner 2019, XAR shares recently broke out above resistance in the $112 area, hitting fresh highs. The ETF’s 14-day Relative Strength Index (RSI) is now on the cusp of overbought territory (at 70 or above).
It’s a similar setup with LMT, which just saw its biggest single-session volume since June, and its 14-day RSI in overbought territory for the first time since early July.
Bomber maker NOC also started 2020 overbought, and just tested previous highs around $380. This area halted the stock’s impressive rally in 2018, so it will be interesting to see how NOC fares here again.
Cybersecurity
Finally, cybersecurity stocks are on the collective radar amid U.S.-Iran tensions.
Remember a few years ago, when the Justice Department charged a bunch of Iran-backed hackers for coordinated cyber attacks on a bunch of American banks?
Or when they knocked NYSE and Nasdaq websites offline?
Department of Homeland Security’s (DHS) Cybersecurity and Infrastructure Security Agency (CISA) Director Chris Krebs sure does…
The ETFMG Prime Cyber Security ETF (HACK) touts itself as the first and largest cybersecurity-based fund.
It also notes that the industry is “aggressively growing,” and “spending has grown 35x from 2003 to 2016 with 2017-2021 spending expected to combine for $1 trillion.”
After the U.S. took down the Iranian general, volume on HACK hit its highest point since late May. The ETF also rocketed into overbought territory, with a 14-day RSI now sitting above 78.
After marking a double top back in July, HACK shares took a breather until October, but since then it’s been mostly uphill, with the ETF touching a fresh high yesterday.
Akamai Technologies (AKAM) is among HACK’s top 10 holdings.
AKAM stock gapped higher on Jan. 7, after Guggenheim upgraded the security to “buy” from “hold.”
The stock’s 14-day RSI is above 70 for the first time since late July, and it’s now testing a familiar ceiling in the $92 area, which put a lid on AKAM in the second half of ‘19.
It will be interesting to see if this sector sustains its momentum deep into January — or beyond.
In summary, I’ll keep watching developments between the U.S. and Iran — as well as how the three sectors above react to any news.
