Defense Stock Looks Ready for Next Charge Higher

Kratos Defense & Security Solutions Inc (NASDAQ:KTOS) was last seen down 0.8% to trade at $75.99 at last check, having pulled back from its Oct. 9 record high of $112.57. The shares are still up 188.7% year over year, however, and recent losses have placed the equity near a trendline with historically bullish implications.

Specifically, KTOS has pulled back to its 80-day moving average. Per Schaeffer's Senior Quantitative Analyst Rocky White, the stock is within 0.75 of the trendline's 20-day average true range (ATR) after remaining above it 80% of the time in the past two weeks and 42 trading days. This signal has occurred 16 other times in the past 10 years, after which the equity was higher one month later 69% of the time with an average 8.5% gain. A move of similar magnitude would put KTOS at $82.44. 

An unwinding of pessimism in the options pits could propel the security even higher. This is per KTOS' Schaeffer's put/call open interest ratio (SOIR), which ranks in the 93rd percentile of readings from the past 12 months.

It's also worth noting that Kratos Defense & Security Solutions stock tends to outperform options traders' volatility expectations, per its Schaeffer's Volatility Scorecard (SVS) of 82 out of 100.