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The set up: The defense giants are preparing for a big earnings season.

Beyond current profits, there’s big news to consider. We’ve all heard about the proposed funding for defense stocks under President Trump and the rumor is that number could be 5 percent above the Trump administration’s plan for fiscal 2018. This could be great news for titans like Lockheed Martin Corp. (LMT) and Northrop Grumman Corp. (NOC), but I believe there’s a good chance it could trickle down to a small-cap like RADA Electronic Industries (RADA).

The background: Lockheed and Northrop are pushing all-time highs and RADA just came off a big 91% jump in revenue for the first quarter of 2017. That has pushed RADA shares to a 52-week high.

The play: I have my eyes set on a bigger target than current highs. RADA recently hit $2.26, just two cents off a key resistance area on the two-year chart. I’ll be looking to make a play at this breaking spot with potential for RADA to test August 2015 highs of $2.64 and potentially creep into the gap from July 2015, which is upwards of $3.00.

The bottom line: Defense stocks are hot right now; if the two big guns beat on earnings, RADA could benefit from their bullish moves. Keep a close eye on this set-up; I like it for both its day-trading and swing-trading potential. I’ll be looking to buy the $2.28 breakout and shoot for a 5 to 10 percent move near those August highs. My stop would be -5 percent.

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Jeff Williams is the lead trader of PennyPro.com. He is a short-term trader of stocks under $10 a share. At the time this article was published on RagingBull.com, he had no open positions, options or orders of RADA but was planning to trade the stock as described in the article. He last traded the stock on June 28. He had no shares, options or open orders on LMT and NOC.

Author: Jeff Williams

Jeff Williams is a full-time day trader with over 15 years experience. Thousands of entry-level and experienced traders alike – day-traders and swing-trade small cap stock traders – credit Jeff with guiding them to turning small accounts into big accounts.

Jeff’s "Small Account Challenge" shows people how to transform accounts from a few thousand dollars into $25k, $50k or even $100k.

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