One sector that performed exceptionally in 2024 was the SIA Aerospace and Defence sector, driven by ongoing conflicts in Eastern Europe and the Middle East. However, the sector is now showing signs of slowing momentum, as many stocks have encountered resistance from sellers, either taking profits or rotating sectors. Companies such as Heico Corp. (HEI), GE Aerospace (GE), and Leidos Holdings (LDOS) have shown negative monthly performance, in contrast to their strong gains throughout 2024. In response, an extensive table of aerospace names has been added as part of the SIA Custom Portfolio Report, with red circles highlighting this underperformance creeping into the sector. Some of these stocks have already given back half of the gains made in 2024, with Leidos (LDOS) down -23.75%, though still up an impressive 43.02% YTD. This sector now warrants close attention; while the cause of the recent shift is unclear, a consolidation pause seems plausible after such rapid gains. However, there may be broader trends at play, such as the potential for a reduction in geopolitical tensions, which could dampen momentum in aerospace stocks. While this may be a gut feeling, at SIA we are rules-based, not gut-based. As such, the focus is solely on relative performance, and currently, the SIA Aerospace sector is signaling a shift, warranting attention.
Turning to Leidos Holdings (LDOS) specifically, a point and figure chart with a 1% scale has been included, which clearly shows the pullback from resistance. Several notable trends emerge on the chart, including underperformance relative to the SIA S&P 500 Index Report, marked with a red circle for emphasis. Additionally, a breakout clipping in the black circle illustrates that LDOS, once a strong performer, has recently fallen into the "Unfavored" red zones in several SIA reports. This decline is further evident in the SIA Matrix Position chart at the top of the report, where an arrow points to the relative drop in mid-November. The point and figure chart provides key support and resistance levels, with initial support at $153.52, followed by additional levels at $141.77 and $129.63. The major support zone, highlighted in green, is between $105.18 and $106.24. Given the strong rally in 2024, caution is advised for those who have benefited from this upward move. Should this pullback prove to be a consolidation, resistance has been identified at the 3-box reversal level of $161.35, with further resistance at $166.24 and potentially at $181.81, based on the prior pole. The key psychological resistance level is at $202.84, consistent with the $200 mark. Finally, it’s important to note that the SIA SMAX score has moved into the negative (red) zone, with a reading of 5, indicating near-term caution relative to other asset classes.
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