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Recent terrorist activity in Paris, Lebanon and Egypt has prompted investors to take a closer look at the U.S. aerospace and defence Industry. Demand for supplies to the military is expected to increase as the world takes aim at Islamic State.

The focus is on Washington. Chances are high that U.S. military spending limits set by the sequester will be reduced and the defence budget will be raised. Anticipation of Washington's change in direction will trigger increasing interest in aerospace and defence stocks.

Investor interest in the industry has increased at a time when the seasonal trend for the industry already has turned positive. Equities and exchange-traded funds in the industry have shown positive returns during the past 20 years from mid-October to early January and from mid-March to mid-May. Average return per period for the former period was 6.0 per cent, while average return per period for the later period was 8.0 per cent.

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On the charts, most equities and ETFs in the industry have an improving technical profile. Using the chart for iShares U.S. Aerospace & Defense (ITA-N) as an example, units recently broke above a reverse head and shoulders pattern (excluding the Aug. 25 anomaly) to form an intermediate uptrend. Units recently began to outperform the S&P 500 Index, moved above their 20- and 50-day moving averages and have uptrended short-term momentum indicators (Stochastics, Relative Strength Index, Moving Average Convergence Divergence).

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Three ETFs are available for investing in the industry. The most actively traded ETF is iShares U.S. Aerospace & Defense ETF (ITA-N). Others include Powershares Aerospace & Defense ETF (PPA-N) and SPDR S&P Aerospace & Defense ETF (XAR-N)

Another way to invest in the sector is to accumulate a basket of liquid stocks that recently began to outperform the S&P 500 Index. Selections include: Boeing Co. (BA-N), United Technologies Corp. (UTX-N), Lockheed Martin Corp. (LMT-T), Northrop Grumman Corp. (NOC-N), Raytheon Co (RTN-N), Textron Inc. (TXT-N) and Rockwell Collins Inc. (COL-N).

Disclaimer: Don Vialoux and Jon Vialoux are authors of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds available at www.timingthemarket.ca and www.equityclock.com . This report is for information only. It should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed.

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