Defense stock is breaking out on the charts after an assist from a bank upgrade

Defense stocks are rallying Tuesday, extending their oversold comeback following a major correction in the fourth-quarter. The up-move is being led by Northrup Grumman (NOC) , which is rallying on news of an upgrade from Citigroup. That upgrade is resulting in a meaningful bullish shift from a technical perspective. NOC has seen a strong rally unfold above key support from the weekly cloud model, near $460. Tuesday’s gap higher is yielding a breakout above initial resistance from the 50-day moving average, approximated by the 10-week moving average on the chart. The breakout is associated with a new oversold upturn in the weekly stochastics, which is an intermediate-term bullish development suggesting the stock’s three-month corrective phase has matured. The signal is the first of its kind since early July, which preceded a rally that lasted several weeks and was marked by outperformance versus the S & P 500 Index (SPX). The weekly MACD histogram shows improvement in momentum, and we expect a bullish crossover in the MACD to follow the stochastic upturn. The oversold ‘buy’ signal suggests NOC will make greater upside progress, toward final resistance near $556, which goes back to the 2022 high. This level is important since it defines the top of a long-term trading range. Assuming we see upside follow-through, the 50-day moving average can be referenced in the future as a gauge of trailing support and a stop-loss threshold for long positions. We view NOC’s long-term trading range within the context of its secular uptrend, denoted by the monthly cloud model, which provides long-term support in confluence with the weekly cloud model. Long-term momentum is presently neutral per the monthly MACD, but we expect intermediate-term upside follow-through towards the top of the trading range. The sustainability of the uptrend will depend on whether NOC can resolve its trading range higher with a breakout above the $556 level. If this occurs, the monthly MACD would likely shift decisively to the upside. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here . DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. 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