Todays Big Stock: Northrop Grumman Corporation Co (NYSE: NOC)

Northrop Grumman Corporation is an integrated enterprise consisting of businesses that cover the entire security spectrum, from undersea to outer space and into cyberspace. Northrop operates in four segments: Aerospace Systems, Electronic Systems, Information Systems and Technical Services. In April 2009, the company acquired Sonoma Photonics, Inc., as well as assets from Swift Engineering’s Killer Bee Unmanned Air Systems product line. Last year the company separated its shipbuilding business through a spin-off of its subsidiary, Huntington Ingalls Industries, Inc.

To review Hyatt Hotels’ stock, please take a look at the 1-year chart of NOC (Northrop Grunman Corporation) below with my added notations:

After breaking a key level of $60 (blue) in August, NOC has fallen into a sideways, consolidation pattern know as a Rectangle. This type of pattern forms when a stock gets stuck bouncing between a horizontal support and resistance. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. The nice thing about a Rectangle pattern is that it will provide you with clearly defined breakout and breakdown points. For NOC, the Rectangle pattern has formed a $55 resistance (red) and a $50 support (green). The stock will have to break through one of those levels eventually.

Chart patterns can also provide price targets. Simply take the height of the overall pattern and add or subtract that amount to or from the breakout or breakdown point to get the minimum price objective. For example, since the Rectangle pattern for NOC is $5 high ($55 – $50), NOC should climb to a minimum of $60 ($55 + $5) if it breaks above $55 or fall to $45 ($50 – $5) if the stock breaks below the $50 level. Chart pattern price targets are certainly not guarantees, but they are often fulfilled.

The Tale of the Tape: NOC has formed a very common chart pattern know as a Rectangle. This pattern shows clear breakout and breakdown points for a potential long or short position. For NOC, a trader could enter a long position at the $50 support or a short position on a rise to $55. However, a lot of traders like to wait for the break up or down to enter the trade. So, a long trade could be made if NOC were to break above $55 or a short position if the stock breaks below $50.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!
Christian Tharp, CMT