Mapping the Market: Retreating US defense stocks could be headed for a turn higher

Shares in US defense companies have been persistently declining since hitting all-time highs ​in early-to-mid August, but they could be nearing a point where some ​market participants look for a turnaround, technical analysis indicates.

Click ‌here ​for a detailed technical analysis chart. Measured by the iShares US Aerospace & Defense ETF (ITA), the sector has lost as much as 18.2% from its August 14 record closing high of $253.22, according to data supplied by LSEG. That ‌leaves the ETF on the precipice of a bear market, which is usually defined as a 20% decline from its record closing high.

The decline may be surprising given the backdrop of ongoing global conflicts, rising security concerns and bipartisan support for military investment, though budget uncertainty has weighed on sentiment. The retreat has been ‌swift. In September, ITA notched its largest monthly decline since March and its worst quarterly drop since the first quarter of 2020, when markets ‌were rocked by the pandemic-driven selloff. It also just posted a record seventh straight weekly decline, according to LSEG data going back to 2006.

When a stock or ETF is falling this rapidly, technical analysts often look to tools that measure momentum to determine whether the move is sustainable. One such gauge is called the Relative Strength Index (RSI), which looks at the speed and change ⁠of prices ​to determine whether something is overbought ⁠or oversold. An RSI below 30 indicates oversold conditions. With the ITA's Friday close of $207.79, its 9-week RSI ended at 30.2, essentially right on the oversold threshold.

This puts bulls alert for ⁠the possibility of something technical analysts call a tradable bottom — or at least a pause in the ETF's relentless slide. Additionally, over the past decade, sharp ITA reversals from below-30 ​weekly RSI readings have often coincided with important lows in its price. One note of caution: during the COVID-driven market collapse, the weekly RSI ⁠fell as low as 9.4 before finally turning higher.

The real test is whether the ETF can rise above its March and April lows in the $209.31 to $211.82 area. If so, this will increase ⁠expectations ​of a further recovery to the 40-week moving average, which ended Friday near $231. At that point, the record high of $256.60 would become a focus. If, however, the ETF continues to decline, the next significant support is at the November 2025 trough at $195.71.

What the chart shows: (Mapping the Market ⁠is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column does not constitute ‌investment advice or trading ‌recommendations. )

(Terence Gabriel is a Reuters market analyst. The views expressed are his own. ​Editing by Burton Frierson and Nia Williams)