KTOS Stock Almost Set for a Sustained Move Toward Higher Prices

KTOS stock
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KTOS Stock: Waiting for One More Signal

On July 12, President Donald Trump claimed victory in Brussels when NATO members agreed to raise their defense spending. This news sent shock waves throughout the markets, and defense stocks appreciated as a result.

In light of this news, I have decided to focus on the defense sector today, because the increased fund flow from NATO will act as a tailwind propelling this sector higher.

In this sector, I am focusing on Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) because I believe it is one of the stocks that’s likely to appreciate. The news surrounding the military sector is not the main reason why I like Kratos stock; it’s just the catalyst setting the next move in motion.

The reason I like this stock is that it has just completed a technical price pattern that is suggesting that higher prices are likely to follow.

This completed technical price pattern is highlighted on the following KTOS stock chart.

Chart courtesy of StockCharts.com

The completed technical price pattern highlighted on this chart is a descending channel.

A descending channel is characterized by price action that contains a series of lower highs and lower lows, which is the same price action that characterizes a bearish trend.

What separates this pattern from an ordinary bearish trend is that, when I connect the peaks and troughs that were characterized by the bearish price action, it created two parallel downward-sloping trend lines. These trend lines captured the pattern by identifying where levels of price resistance and price support resided.

This is important information because, in order to negate the implications suggested by the pattern, Kratos stock needed to break above price resistance.

Otherwise, as long as the stock was contained within these trend lines, lower prices were likely to persist.

On July 10, KTOS stock broke above resistance, completing the descending channel. This suggests that higher prices are likely to follow.

The implications of this event are compounded because the descending channel doubles as a consolidation wave. This consolidation wave is part of a wave structure highlighted on the following chart.

Chart courtesy of StockCharts.com

This KTOS stock illustrates a wave structure consisting of impulse waves and consolidation waves. Consolidation waves and impulse waves work together to create and sustain a bullish trend.

The waves highlighted in green on the above chart are impulse waves. They capture the stage in a bullish trend when the stock staged a sustained move toward higher prices.

The waves highlighted in purple are consolidation waves. They capture the stage in a bullish trend when the stock price corrected and refrained from advancing.

The completed descending channel, which doubles as a consolidation wave, is suggesting that higher Kratos stock prices, via an impulse wave, are now in development.

Before I get ahead of myself, I need to reiterate that, in order to confirm that higher KTOS stock prices—via an impulse wave—are in development, a bullish moving average convergence/divergence (MACD) signal is required.

MACD is a very influential momentum indicator that uses the crossing of a signal line to determine whether bullish or bearish momentum is influencing the price action in a stock. Bullish momentum implies that a stock is geared toward higher prices, while bearish momentum implies that a stock is geared toward lower prices.

Momentum is very influential to a stock’s price; a stock cannot sustain a move in either direction unless the applicable momentum is supporting it.

This is why, in a bullish trend, impulse waves need to be confirmed by a bullish MACD cross, while consolidation waves need to be confirmed by a bearish MACD cross.

The MACD indicator is currently converging, and a bullish signal could be generated in the weeks ahead. Until one is generated, the implications of the completed descending channel are yet to be confirmed.

Analyst Take

A number of indications are currently suggesting that Kratos stock is likely to appreciate.

In order to confirm that a sustained move toward higher KTOS stock prices is in development, I am waiting for the MACD indicator.

The good news is that the MACD indicator is on the verge of generating the bullish signal I seek, which would confirm that higher prices are in development.