Wildcard Defense Name Northrop Appears Ready to Break Out

RTX RTX, the old Raytheon Technologies, has been hot as heck. The stock is up 31.9% since mid-April. L3Harris LHX is up 30.6% since late February. As readers well know, these two names, along with Northrop Grumman NOC have been my "longs" in the traditional aerospace and defense space.

Of course I have other longs, among defense contractors such as Palantir Technologies PLTR and Rocket Lab USA RKLB, but right now I am talking about the traditional big ticket industrial hardware manufacturing contractors. Though it pained me, I had jettisoned both Lockheed Martin LMT and General Dynamics GD earlier in the year. and those two have been the laggards. We did have GD for the rally in March through April. Readers were kept abreast of those moves.

One Name Has Troubled Me

Now of all those names just mentioned, I have been fortunate enough to traverse the environment at hand rather well, led by technical analysis as well as the underlying fundamentals of man's need for the tools of national security. The one name that I have been long that has performed rather erratically, has been Northrop Grumman, manufacturer of the suddenly famous B-2 Bomber. I have traded around this name, but all told, I am only up 6% this year in NOC, while the stock is up 7.1% year to date.

While the current global situation has put a recent bid under almost all defense contractors, NOC suddenly appears to be on the verge of a technical breakout. Earnings are not due until late July, so any push from that direction is still a good five to six weeks out. Let's see what Sarge sees, shall we?

The Chart​

Readers will see that Northrop Grumman sold off ​in late April after reporting first quarter financial results. This put an end to the uptrend represented here by a Raff Regression model. This selloff also became the first leg in what I now see as a Double Bottom pattern of bullish reversal with a $498 pivot.

It seems clear that since hostilities broke out in the Middle East last week, that NOC broke not just above pivot, but also above its own 21-day exponential moving average, 50-day simple moving average and 200-day simple moving average. This, in theory, gets not only the community of portfolio managers, but also the swing crowd behind the stock.

Relative Strength appears stable in better than neutral territory, which is supportive. Better than that, though, the daily Moving Average Convergence Divergence is suddenly postured very bullishly. The histogram of the 9-day exponential moving average stands well above the zero-bound, while the 12-day EMA has soared above the 26-day EMA with both of those lines also in positive territory.

Northrop Grumman Strategy 

Target Price: $575

Pivot: $498 (apex within the "W")

Add: down to the 50-day SMA (currently $490)

Panic: New post June low ($472)

At the time of publication, Guilfoyle was long RTX, LHX, NOC, PLTR, RKLB.