Market Overview

This Aerospace ETF Could Fly This Week

This Aerospace ETF Could Fly This Week

This week, nearly a third of the S&P 500 reports quarterly earnings. Traders looking for sector or industry groups with an even larger concentration of earnings reports than that have some compelling choices, perhaps none more so than aerospace and defense.

What Happened

For active traders, the Direxion Daily Aerospace & Defense Bull 3X Shares (NYSE: DFEN) is one leveraged exchange-traded fund to consider in the week starting Monday, July 22. DFEN tries to deliver triple the daily returns of the Dow Jones U.S. Select Aerospace & Defense Index (DJSASDT).

In terms of near-term opportunities and relevance, DFEN has those in spades because more than 60% of the Dow Jones U.S. Select Aerospace & Defense Index reports earnings this week. Last Friday, DFEN jumped 4.11% on volume that was nearly 50% above the daily average after Boeing Co. (NYSE: BA), the largest component in the Dow Jones U.S. Select Aerospace & Defense Index, said it is taking a $5 billion charge related to the grounding of the 737 MAX passenger jet.

Why It's Important

Among the aerospace and defense names reporting next week are Lockheed Martin (NYSE: LMT), Boeing and Northrop Grumman (NYSE: NOC) on consecutive days starting Tuesday, July 23. Those stocks combine for nearly 34% of DFEN's underlying index, confirming that there will be ample opportunity to deploy DFEN on a short-term basis this week.

“Two industry issues will be prominent on most calls,” according to Barron’s. “First, investors will look for any insights into Boeing’s troubled 737 MAX program. Many defense contractors also make commercial aerospace parts, making them a good source for investors who are anxious to learn how long the plane will be grounded. Currently, Boeing management expects to submit proposed solutions for the MAX jet to aviation regulators by September.”

What's Next

There are some modest signs that traders are preparing for DFEN to move. For example, for the five days ending July 18, volume in DFEN was 15% above the trailing 20-day average, according to Direxion data. The triple-leveraged aerospace and defense ETF is up 2.10% this month.

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