2 Drone Plays to Buy as Market Revolves Around Iran Deal
I’m focusing on the drone sector and added this drone battery play.
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The economic news on Thursday morning was mixed, but with expectations low, the reaction was mild. Stocks were stumbling into midday with some reverse rotation back into the Magnificent Seven (MAGS) and other big caps, while small caps and the equal-weight indices lagged. That is a reverse of the recent pattern, but it is common for investors to move back into the favorite big cap names when there is a pause or pullback in the action.
It looked like an inside day, but then some headlines about Iran hit. There is a report that the U.S. and Iran reached a framework to extend the ceasefire by 60 days, but it was only minutes before some skepticism emerged. So far it’s holding and we are starting to see a push higher.
A Deal Too Well Anticipated to Avoid a Sell-the-News Reaction
A spike and a fade are what I have been expecting, not only because a deal is anticipated but also because there is a good likelihood that things will not proceed smoothly. Axios reported that the deal is the start of negotiations on Iran’s nuclear program, but it keeps shipping through the Strait of Hormuz unrestricted. There will be 60 days to finalize the deal.
President Trump wants to take a few days to think about it, both sides still need senior leadership sign-off, and a diplomat involved in the mediation said that the report overstates the progress.
A deal is so well anticipated, and with the indices at the highs already, it is going to be hard to avoid a sell-the-news response of some kind. The resolution has been anticipated for so long that the market has probably fully discounted it well in advance. Oil is still slightly up despite the news and is the chief tell about the mood of the market to any deal talk. Watch what oil does because it is likely a leading indicator for the indices.
Watch the Internals, Not the Indices
The reverse rotation into the Magnificent Seven this morning is pretty standard action after the recent surge in speculative trading in secondary stocks. That speculation is still happening but it’s narrower and is shifting into different areas. Drones were the main play on Wednesday, but there are plenty of secondary AI stocks that are still in play.
As I mentioned in my opening column, I’m long Ondas Holdings (ONDS). I think this move may have legs and I’ll likely add to the position later on Thursday. Another drone play I’ve discussed in the past is Amprius Technologies (AMPX), which makes lightweight batteries specifically for drones. I added that position and will likely look for additional entries.
Strategy
My main focus is on stock picking rather than guessing which way the indices are heading. Even if there is a sell-the-news reaction in the indices, that may be a good opportunity for dip buying in individual stocks. I’ll react as the situation develops.
In the meanwhile I’m digging into the charts and looking for names that are exhibiting relative strength but are not crazy extended. What is most important right now is that there is an appetite for speculation in smaller stocks, and it looks like it will persist regardless of what happens with Iran or the economic news. This is a good market environment for aggressive stock pickers who are finding the right themes.
At the time of publication, DePorre was long ONDS and AMPX.
