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- As the SPX500 enters a more volatile phase with underlying market weakness broadening, we are maintaining a defensive stance by leaning into resilient performers like LMT.us and BP.uk, while rotating out of underperforming NEM into the stronger relative play BATS.uk.
- Lockheed Martin (LMT.us) is sitting on key support near 640, having quietly outperformed the S&P 500 over the past three weeks by holding firm in a risk-off environment with notably lower volatility.
- BP.uk has been a standout performer since the onset of Middle East tensions, and while it is now overbought, any pullbacks should prove compelling, with the stock offering a natural hedge against elevated oil prices.
- British American Tobacco (BATS.uk) is showing strengthening bullish momentum with a potential breakout above 4,620, while its defensive cash flows and reliable income profile make it an attractive hold in a risk-off market.

Quick Market Overview

Markets bounced yesterday after three weeks of losses as hopes grew that the US could help reopen the Strait of Hormuz and ease pressure on oil prices. The Dow, S&P 500 and Nasdaq all rose, with investors betting that disruptions to energy flows may not last indefinitely. Still, oil remains the key driver for equities, and recent rallies have struggled to hold. Attention now turns to the Federal Reserve, where rates are expected to stay unchanged, although shifting oil prices could quickly alter the outlook.

Strait of Hormuz

Markets are being driven by one variable right now: the reopening of the Strait of Hormuz.

This narrow passage typically handles around 20% of global oil flows, but it remains largely shut due to the ongoing conflict, creating one of the biggest supply shocks in decades. Oil is holding above the critical $100 per barrel level as disruption persists and shipments remain constrained. In this environment, markets are effectively trading inversely to oil in the short term: when oil rises, stocks come under pressure; when oil falls, equities find relief. That relationship has been clearly visible in recent sessions, where spikes above $100 triggered selloffs, while dips in oil helped stabilise markets.

The transmission mechanism is straightforward. Higher oil feeds directly into inflation, keeping interest rates elevated, weakening consumer spending, and compressing corporate margins. This is why $100 per barrel has become the key level to watch. Above it, oil acts as a clear short-term headwind for equities and risk assets. Below it, especially if prices move back toward $80, markets would likely benefit from easing inflation pressure and a more supportive policy backdrop.

Until the Strait of Hormuz is fully reopened and supply normalises, oil will likely remain a dominant driver of macro conditions and market direction.

General Equity Market Health (SPX500)

The SPX500 has slipped below the 6,710 support zone, a subtle but important shift in tone. In technical analysis, the principle of polarity suggests that once support is broken, it often turns into resistance, making 6,710 a key level to watch from here. A move back above it would help steady the picture, but until then, the focus turns to the next support at 6,580, where a break lower would reinforce the bearish case.

Momentum is not offering much comfort either. The RSI has drifted below the neutral 50 mark rather than oscillating around it, hinting at a growing underlying weakness. For the outlook to improve, we would want to see the index reclaim 6,710 alongside an RSI push back above 50, signalling a return to a more constructive bias. Until that alignment appears, a cautious stance remains the prudent approach.

We Continue to Advocate For a Defensive Stance

The SPX500 has entered a more volatile phase, slipping over 3% in the past three weeks. Beneath the surface, the picture is weaker still, with the equal-weighted index down close to 5%, highlighting broader softness across the market. Against this backdrop, our stock picks have held up relatively well. Lockheed Martin is down just under 2%, BP has surged more than 15%, while Newmont has been the clear laggard, falling just under 10%.

Newmont's weakness reflects a stronger dollar over the same period, which has weighed on gold prices. The driver here has been the spike in oil, which has effectively priced out rate cuts in the near-term, supporting the greenback but putting pressure on the yellow metal.

With the SPX500 now below the key 6,710 level, we are maintaining a defensive stance. This is not an environment that rewards aggressive stock picking. That said, valuations in parts of the market are beginning to look more appealing. The challenge is timing, as what appears cheap today may become cheaper still. For now, we remain patient and will continue to monitor opportunities for future editions of AlphaTrack.

We will retain LMT.us and BP.uk in this edition of AlphaTrack, while replacing NEM.us with BATS.uk, which is demonstrating stronger relative performance compared to the mining company.

Potential Trade Setups

British American Tobacco plc (BATS.uk)

Technical Analysis
- BATS's EMAs have crossed to the upside and are beginning to show clear separation and positive slope.
- The RSI has moved above 50, indicating that bullish momentum may be building.
- Sustained strength above 50 on the RSI will be important to support further upside.
- Overhead resistance is located at 4,620.
- If the RSI holds above 50, the probability of a move through resistance improves.
- A breakout above 4,620 would be considered a bullish signal.

Caveat
- A failure to break above 4,620 would be a negative signal for the share.
- The setup would deteriorate more meaningfully if the RSI falls below 50 and remains there, indicating a shift to negative momentum.
- A move below support at 4,230 would turn the overall outlook bearish.

Fundamental Perspective
BATS tends to leans into a risk-off environment rather than fighting it. It's a cash machine: strong, predictable free cash flow, a ~5–6% dividend yield paid quarterly, and expected buybacks all supported by resilient demand that historically holds up even when growth slows.

Right now, the defensive case is even stronger. Credit agencies are pointing to improving leverage and stable earnings visibility, while management is guiding towards continued cash generation and balance sheet improvement into 2026.

In simple terms, when markets are nervous BATS gives you income, stability, and low sensitivity to economic cycles.

BP plc (BP.uk)

Technical Analysis
- BP has rallied sharply following the effective closure of the Strait of Hormuz and the surge in oil prices.
- The RSI has now moved into overbought territory (blue rectangle).
- This points to a potential near-term ceiling, with profit-taking risks increasing.
- Tightening stop losses is prudent to protect gains.
- A pullback would likely allow the RSI to reset, creating scope for another leg higher, particularly if the Strait remains disrupted.
- Support at 515 is a key level to watch on any retracement.

Caveat
- A reopening of the Strait of Hormuz, or a meaningful increase in traffic, would likely pressure oil prices.
- Any easing in supply constraints would weaken the underlying case for this trade.

Fundamental Perspective
BP offers a compelling way to capture the current geopolitical risk premium in oil, with the disruption to the Strait of Hormuz supporting higher crude prices and directly boosting the company's cash flow and shareholder returns.

In a risk-off environment, this strong cash generation and dividend profile provides a relative defensive tilt, although the business remains highly sensitive to oil prices.

Even if the Strait reopens and prices ease, structural supply constraints may limit the downside, allowing BP to continue generating solid free cash flow, though at reduced levels. If oil prices fall as conditions normalise, the trade becomes less about momentum and more about BP's valuation and income, while geopolitical tensions still bring both risks and opportunities.

Lockheed Martin Corporation (LMT.us)

- LMT has outperformed the SPX500 since the Middle East conflict began.
- Notably, the share has shown significantly lower volatility than the broader market, offering a degree of downside protection.
- However, it remains modestly lower overall and is now trading near underlying support at 640.
- A bounce from this level would be constructive, but it needs to be supported by the RSI moving above and holding 50 (blue arrow).
- If this occurs, it would strengthen the bullish case, particularly if accompanied by a positive EMA crossover.

Caveat
- A break below the 640 support would mark a negative technical development for LMT.
- Additionally, if the RSI remains below 50, it would signal underlying bearish momentum and shift the thesis from bullish to bearish.

Fundamental Perspective
LMT is a direct beneficiary of rising geopolitical tension, and the current Middle East conflict reinforces that tailwind: when conflict escalates, defence budgets don't just rise, they accelerate, with urgent demand for missile systems, air defence, and advanced aircraft where Lockheed dominates.

The company already sits on a massive multiyear backlog driven by programmes like the F-35 and missile defence platforms, giving it rare earnings visibility compared to most equities, while recent conflicts have historically triggered fresh orders and replenishment cycles for munitions.

At the same time, LMT tends to behave defensively in portfolios, often holding up or outperforming during periods of market stress, which makes it both a growth story tied to global defence spending and a hedge against worsening geopolitical risk.

Hot News, Cold Logic

Nvidia used its annual AI event (GPU Technology Conference) to showcase new chips and partnerships while forecasting that its processors could help drive $1 trillion in sales by 2027, signalling confidence that demand for computing power remains strong. CEO Jensen Huang highlighted a shift toward broader offerings, including CPUs and new AI-focused chips based on startup Groq technology, as the company looks to defend its lead amid rising competition and customers building their own solutions. This outlook does go someway in reassuring the market about long-term demand.

AI remains an area to watch closely, with two key concerns still in play. First, the scale of investment raises questions about whether it will ultimately translate into meaningful profits. Second, there is the risk of disruption across entire industries, particularly in areas like software. While Nvidia's GTC may help ease some of these worries, the outlook still calls for caution.

Final Thought

Markets are being pulled between resilience and risk: oil remains volatile above $100 as the Iran conflict disrupts global supply and stokes inflation fears, while equities swing and capital rotates into defensive assets as sentiment shifts with each headline.

However, history suggests that even amid geopolitical shocks, resilience builds beneath the surface, and for disciplined investors, volatility is not just risk but the start of opportunity.