Methodology & Primer
How Everything Is Calculated
Every number on this site is derived from public data using transparent formulas. If you spot an error or want to reproduce a calculation, you have what you need.
Primer: the defense industry in 90 seconds
Defense companies serve different roles in the national security supply chain. Knowing where a company sits matters because each segment has different revenue visibility, margins, and sensitivity to budget cycles vs. geopolitical events.
The value chain
Prime contractors — Lockheed Martin (LMT), RTX Corporation (RTX), Northrop Grumman (NOC), General Dynamics (GD), Boeing (BA), Huntington Ingalls (HII), L3Harris (LHX). Build the largest weapons platforms: fighter jets, submarines, missiles, satellites. Multi-year contracts, massive backlogs ($100B+ for LMT alone), predictable revenue. Move primarily with the DoD budget cycle.
Defense IT & cyber — Leidos (LDOS), CACI International (CACI), Booz Allen Hamilton (BAH), Science Applications (SAIC), Parsons (PSN). Provide software, cybersecurity, data analytics, and IT services to DoD and intelligence agencies. Higher margins than hardware primes, growing share of defense budgets.
Defense tech & drones — Palantir (PLTR), Kratos Defense (KTOS), AeroVironment (AVAV). New-generation companies building autonomous systems, AI platforms, drones, and directed-energy weapons. Higher growth, higher volatility, smaller backlogs.
Space & launch — Rocket Lab (RKLB), Intuitive Machines (LUNR), Redwire (RDW), AST SpaceMobile (ASTS). Building infrastructure for space-based defense: launch vehicles, lunar landers, in-space manufacturing, satellite communications.
Aero & defense components — TransDigm (TDG), HEICO (HEI), Howmet Aerospace (HWM), Mercury Systems (MRCY). Manufacture critical subsystems, avionics, fasteners, and electronics. Aftermarket revenue provides recurring cash flow.
European defense (ADRs) — BAE Systems (BAESY), Rheinmetall (RNMBY). Europe's rearmament cycle is distinct from the US budget cycle.
Why defense is cyclical (but differently from semis)
Unlike semiconductors where supply-demand imbalances create 2–4 year cycles, defense cycles are driven by budget politics and geopolitics. The National Defense Authorization Act (NDAA) sets annual spending levels. Continuing resolutions (CRs) freeze spending at prior-year levels. Sequestration can compress the entire sector. Supplemental appropriations inject unplanned spending.
That's the case for splitting sentiment into two parallel gauges. The old "single defense index" approach blurs what is actually a two-speed sector.
Sentiment composite
Two parallel gauges score sentiment from 0 to 100 for two ticker groups. Same components, different baskets.
Ticker groups
| Prime & Legacy | LMT, RTX, NOC, GD, BA, HII, LHX, LDOS, CACI, BAH, SAIC, PSN, TDG, HEI, HWM |
| Defense Tech & New Space | PLTR, KTOS, AVAV, RKLB, LUNR, RDW, ASTS, MRCY, BAESY, RNMBY |
Composite formula
100% technical — all computed live from Yahoo Finance chart data. Zero manual inputs. Every component updates daily after market close.
| Component | Weight | What it measures |
|---|---|---|
| Sector breadth (% above 50DMA) | 22% | How many defense stocks are in short-term uptrends |
| 14-day RSI (averaged) | 18% | Overbought vs oversold across the basket |
| Distance from 50DMA | 13% | How far prices have stretched from short-term average |
| Distance from 200DMA | 12% | How far prices have stretched from long-term average |
| 1-day momentum | 13% | Today's direction and magnitude |
| 30-day realized volatility (inverted) | 10% | Lower volatility = higher score (calmer markets = greed) |
| 52-week range position | 12% | How many near 52-week highs vs lows |
Budget cycle position
Estimates where the defense budget cycle sits. Independent from short-term sentiment.
| Signal | Weight | Source |
|---|---|---|
| DoD topline YoY (enacted + requested) | 25% | DoD comptroller / CBO |
| ITA index year-over-year return | 25% | iShares A&D ETF |
| Aggregate backlog-to-revenue ratio | 25% | EDGAR 10-Q (primes) |
| Contract award volume (90d rolling) | 25% | USASpending.gov |
Contract awards
Our contract awards feed tracks DoD prime contract obligations to companies in our 30-ticker universe, sourced from the USASpending.gov v2 API. We match contract recipients to tracked tickers using a curated mapping of parent company names (including subsidiaries). Awards are filtered to DoD agencies.
Data sources and refresh cadence
| Dataset | Source | Refresh |
|---|---|---|
| Equity prices | Yahoo Finance chart API | daily, after close |
| Sector sentiment | computed | daily |
| EDGAR fundamentals | SEC XBRL Facts API | weekly |
| Contract awards | USASpending.gov v2 API | daily |
| Earnings revisions | Finnhub | daily |
| News headlines | Finnhub | daily |
| Policy timeline | manually curated | as events occur |
Known limitations
ITA index returns use Yahoo Finance price data and do not include reinvested dividends. EDGAR data has a structural lag of ~45 days after quarter-end. The Prime gauge is market-cap weighted toward LMT, RTX, and NOC. Boeing (BA) has significant commercial aerospace revenue which creates impurity in the Prime gauge. European ADR prices are affected by currency movements. USASpending.gov data can lag actual contract actions by 1–3 business days. Yahoo Finance chart API is unofficial and can break without notice. Policy timeline is manually maintained.
This is not investment advice
Everything on this site is publicly available information processed through transparent formulas. None of it constitutes investment advice. Always do your own research and consult a qualified financial advisor.