The news this weekend that Northrop Grumman (NOC) had completed a deal to purchase Orbital ATK (OA) for $7.5 billion comes on the heels of the announcement two weeks ago that United Technologies (UTX) was purchasing Rockwell Collins (COL) for $23 billion plus debt.
Consolidation in the defense and aerospace industry is expected to continue as companies position themselves to meet changing defense needs and counter new and expanding global threats. At this point in Monday’s session, Northrop Grumman shares are retesting the August resistance level of a small channel consolidation. Two consecutive closes above this level would signal the resumption of the rally in the stock that began at the beginning of the year.
Northrop Grumman stock price appreciated by more than 20% this year, before they began trading in a horizontal channel this month. During this consolidation period, the technical indications began to weaken and a breakdown looked like a good possibility. Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator and had been tracking well on both time frames. These readings suggest a loss of underlying short-term positive price momentum and trend direction. Chaikin money flow moved below its 21-period signal average last month and below its center line this month, reflecting distribution in the stock.
Shares of United Technologies fell after the company announced plans to acquire Rockwell Collins, which is typical inverse stock price action between acquiring and acquired company. But Northrop Grumman shares are up today in unison with Orbital shares.
NOC is currently testing channel resistance in the $273 area after testing channel support briefly at the open Monday. The technical conditions leading up to today’s wide range correlated price action make a knee-jerk NOC buy-trade imprudent. The stock will require two consecutive upper candle closes above $273 channel resistance before it can confirm a channel breakout and resumption of its uptrend.