The media will be all over the State of The Union address later today. Each outlet has their own agenda which will color their point of view. We will hear a lot how well the economy and the stock market are doing. We will hear about tax cuts. You can bet your tail that we will hear about immigration, and how there will be a bipartisan solution there. Free trade? He'll go there, especially after his well-received performance in Davos. Fair trade is the term that will be used tonight.
There are two areas on which I am looking for direction tonight in particular. Infrastructure and defense. Defense is important, and regardless of how much the president touches on it tonight, I think that I need a certain level of exposure to the space. President Trump is expected to propose a $716 billion increase in defense spending in fiscal year 2019. That would be a 7% pop from proposed, but still not passed 2018 spending.
Kratos Defense (KTOS) , my old friend, may be rising off of the mat, and is still cheap enough in dollar terms for the home-gamers to play along.
Check out this chart. In late November, the daily moving average convergence divergence (MACD) turns positive after a lengthy slumber. As the new year turns, the same is true for money flow. Relative Strength? Not even in the ballpark of overbought territory. This stock had a rough autumn. Is it finally waking up? I've traded in and out of the name, but I've always been a fan, and have not been completely flat in eons.
Now, look at the Fibs, gang. Wow! Precision. Both the orange and the smaller, more recent blue Fibonaccis display a 61.8% pullback after the name runs, almost like clockwork. Now, when the worm turns against you... you'll know where the cavalry is. See the Pitchfork? The stock is hugging the lower trend line.
Could the share price see support rise toward $13 by the time spring rolls around? Yeah, I think so. I would love to see resistance retest that glorious $14 level, but let's not get greedy. Fact is this. The president wants to spend more dough on defense. The military is apparently quite comfortable going to these guys for solutions. KTOS sell something useful that not everyone else can. After you all have had the chance to read and absorb this article, I will add to my personal long position in this name. A lot of talking heads give you that? So there.
(This is an excerpt from Stephen "Sarge" Guilfoyle's Morning Recon, which now appears exclusively on Real Money, our premium site for active traders. Click here for a free 14-day trial and receive Morning Recon every day, along with exclusive columns from Jim Cramer, James "RevShark" DePorre, technical analyst Bruce Kamich and more.)
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