Northrop Grumman (NOC) – Defense Downside – September 20th, 2021

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Bearish – NOC – $350.24

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Market Outlook:

Equities ended last week on the back foot ahead of the 2 day Fed meeting this week which is expected to provide clarity on the next tapering moves. So far, equities have followed the status quo of September being a seasonally weak month. SPY and QQQ look likely to decline to their next support levels at $426 and $369 respectively. Small caps remain neutral with IWM continuing its rangebound price action. The Dollar Index (DXY) is experiencing an uptick in momentum moving 0.4% higher on Friday providing some evidence that the $93.40 resistance level will likely be broken. Sector rotation indicates narrowing leadership in Discretionary with the other cyclical sectors stuck in the lagging category due to poor relative strength and momentum. Expect further choppiness and volatility in markets this week with the VIX continuing to climb higher.

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NOC Bearish Trade Idea:
Our bearish trade is Northrop Grumman Corp (NOC). NOC experienced a strong rally to $380 major resistance earlier this year and has since pulled back from those levels. Price action has been relatively choppy since, but a break below the $355 support level provides evidence of further declines ahead. NOC is part of the Industrials sector which is also underperforming the market. Both 1M and 6M trends are bearish indicating that NOC should decline further to $335 support. 

As this is a Credit Spread, look to take profits at 50% gain and cut losses at 100%:

Take Profit: $3.30 Debit

Stop Loss: $13.20 DebitView NOC Trade

Sector Outlook

The Relative Rotation Graph (RRG) for sector rotation indicates that a narrowing sector leadership with only 3 sectors in the Improving and Leading categories and 8 sectors in the Lagging and Weakening categories.

Leading (positive relative trend and positive relative momentum): Discretionary and Energy are in the Leading category with both sectors experiencing strong relative strength. 

Weakening (positive relative strength and negative relative momentum): Real Estate, Communications, and Technology are in this category. However, Technology seems to be rotating back into the Leading category while weak momentum in Real Estate and Communications should see both sectors rotate into Lagging. 

Lagging (negative relative trend and negative relative momentum): 5 sectors are in the lagging category – Industrials, Utilities, Materials, Financials and Healthcare. Healthcare and Financials are showing signs of improving momentum while Utilities, Industrials and Materials continue to have weak momentum and relative strength

Improving (negative relative trend and positive relative momentum): Only Staples is in this category after rotating out of Lagging. However, weak momentum may see this sector rotate back into Lagging should it persist this week.  

XLY

Consumer Discretionary is providing leadership for equities but is currently trading near the $188 major resistance level. Bullish or bearish price action at current levels will provide a better indication of where price will head to next. A break above this level opens the door for a further rally. 

XLE

Despite an uptick in relative strength, the Energy sector is struggling to break above the $50 resistance level and will likely decline lower from these levels. Next support is at $47. 

Market Observations

• AMAT – AMAT is testing resistance levels at $144. A breakout higher and retest could lead to a further rally. 
• ETSY – Increasing momentum is driving price above $221 levels which could indicate a rise in price towards the $240 mark.
• WSM – A confirmed break above $188 could lead to new highs above $200 levels.