Weekend Update: The Drone Breakout For the past several weeks, we've been watching an increasingly compelling fundamental story develop in the domestic drone industry. Washington wants an American drone industry. Defense spending is accelerating. Foreign-made drones and components are increasingly being restricted. And the major defense contractors need autonomous-drone capabilities faster than they can build them internally. That creates two potential catalysts: billions of dollars of new business—and a wave of industry consolidation. But longtime subscribers know that's not enough for me. A good story doesn't make a good trade. Price has to confirm the story. That's the essence of what I call Confirmatory Analysis: fundamentals tell us what we want to own; technical analysis tells us when we want to own it. And this week, price started confirming the drone story. The Charts Are Starting to Confirm the Drone Story UMAC went first. It exploded through months of declining resistance and briefly pushed through its old highs near $34. UMAC has effectively become the sector's technical leader. UMAC 240 Minute Unusual Machines exploded through months of declining resistance this week and is now challenging its old highs near $34. The stock has effectively become the sector's technical leader. I don't want to chase UMAC after a near-vertical move. Instead, I want to look for the next UMAC. And that brings us to RCAT and ZENA. RCAT 240 Minute RCAT has already broken through several layers of declining resistance. One important barrier remains and Friday's price action gave us an usually precise price level for determining whether that barrier has fallen. The next significant resistance sits right above Friday's high print, followed by the much more important $13 area. ZENA 240 Minute ZENA may be even closer to its moment of truth. After rallying from roughly $1.25 to $2.14, it finished Friday directly underneath a cluster of declining resistance around $2.15–$2.25. A decisive breakout through that area could open the door to another leg substantially higher. Here's the Trade I'm not interested in guessing. I'm interested in confirmation. UMAC has already demonstrated what can happen when money suddenly pours into this relatively small group of stocks. Now we're going to watch RCAT and ZENA for the same thing. If price breaks resistance—and preferably if options activity confirms the move—we'll have exactly what we're looking for: Fundamental catalyst + technical breakout + options confirmation. The Options Market Is Paying Attention The options market is beginning to notice as well. Friday saw unusually heavy activity in several RCAT calls, including nearly 1,000 September $12 calls traded against only 673 contracts of existing open interest. Meanwhile, almost 20,000 contracts of open interest have accumulated in the October $15 calls. None of that guarantees a breakout. But it gives us another piece of potential confirmation. Now we need price to finish the job. That's Confirmatory Analysis. And if the signals line up, we'll trade it. The Drone Dominoes: UMAC has broken out. RCAT is following. ZENA is knocking on the door. We're looking for the next domino to fall. For now, however, ZENA remains on the Watch List. RCAT has the cleaner actionable setup. New Trade Setup: RCAT RCAT — New Buy Signal Pending I've drawn a new declining resistance line through Friday's $11.76 high. That gives us an unusually precise technical trigger for the coming week. If RCAT closes at $11.80 or higher, we will BUY the October 16th $12 Calls. Notice the word closes. An intraday move above $11.80 is not enough. Friday itself demonstrated why: RCAT traded as high as $11.76 before retreating to close at $11.13. I want the stock to prove that buyers can not only penetrate resistance, but hold it. No close above $11.80, no trade. Active Options PRO Service Premium Service
