Defense Stock Looks Ready to Shoot Higher

The 160-day moving average could support NOC’s next rally

Defense companies are expecting strong demand for 2024, as they monitor actions from both Russia and China. Northrop Grumman Corp (NYSE:NOC) was last seen up 0.3% to trade at $462.39, after pulling back to the $455 level last week and slipping below its 50-day moving average for the first time since October.

This bear gap came after a downgrade from Deutsche Bank to “hold” from “buy,” as well as a price-target cut to $473 from $541. The good news is that this bear note also placed the security near a trendline with historically bullish implications, which may help it erase some of its 15.2% year-to-date deficit.

Per data from Schaeffer’s Senior Quantitative Analyst Rocky White, Northrop Grumman stock is within one standard deviation of its 160-day moving average. The equity saw at least five similar signals over the last three years, defined for this study as having traded north of the moving average 80% of the time in the past two months, and in eight of the last 10 trading days.

NOC 50 160 Days

NOC was higher one month later in 80% of those instances, with an average 7.6% gain. A move of similar magnitude from its current perch would place the security back above $497 for the first time since January. 

Options look attractively priced, making this an excellent opportunity to weigh on NOC. The equity’s Schaeffer’s Volatility Index (SVI) of 18% stands higher than 19% of readings from the past year. This means options players are pricing in low volatility expectations.

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