With the market sitting near its highs, the last thing that traders usually expect to see are technical bargains on big name stocks, but they’re out there.
Today’s three big stock charts look at Northrop Grumman Corporation (NYSE:NOC), Lockheed Martin Corporation (NYSE:LMT) and Foot Locker, Inc. (NYSE:FL) as three representatives of technically oversold stocks that are likely to see a bounce on any market strength.
Northrop Grumman Corporation (NOC)
Defense stocks took a hit after a few companies within the sector became targets of the Trump Administration over expenses related to ongoing military development projects. There have been similar situations in other sectors and stocks, as President-elect Trump has no problem speaking his mind on overspending.
After the selloff, Northrop Grumman shares have continued to troll around the $230-level, building a consolidation zone at this price from which we are starting to see some strength. The initial shock of the selling put NOC shares immediately into an oversold situation after seeing an overbought signal in November.
For now, Northrop Grumman shares are facing a little overhead resistance in the form of the 50-day moving average. But this trendline is moving higher, which will ultimately lend strength to NOC stock. Given that Northrop shares saw a gap higher after earnings that paused at the $230-level, it is imperative that the price holds back any additional selling in the short-term.
A bounce from this level will likely target the $250 price, which is where traders are likely to start cashing-out winning trades on NOC again.
Lockheed Martin Corporation (LMT)
Like NOC, Lockheed Martin shares took a hit on the President-Elect’s tweets regarding military spending. Also like Northrup Grumman, LMT shares found some support at a key price level: $250.
The $250 price has been the point of several short-term reversals for Lockheed Martin, both bullish and bearish, over the last year. This activity makes it more sensitive for traders and a logical fulcrum for the price to make transitions.
LMT shares registered a technically oversold signal at the same time that the shares landed on this support level, fortifying the $250-mark as a must-win support level. At the same time, the shares’ 50-day moving average is trading slightly higher than the current prices, meaning that a move higher will be enhanced by a break back above this important trendline for Lockheed Martin.
Regarding the potential for further downside activity, LMT shares’ 100-day trendline is in the process of rolling over, adding a little more danger to the intermediate-term outlook. A break back below this trendline will send another caution sign to traders that the shares will likely move to a lower target range of $230 to $240 before meaningful buying comes in to move shares higher.
Foot Locker, Inc. (FL)
Retailers have entered what is normally a seasonally soft period. The seasonality comes from the fact that most investors see the retail stocks as having run their Holiday Shopping course as soon as Christmas passes on the calendar. While we historically see this weakness play out, there is reason to look at a few of the companies that have been dragged down with the sector.
Foot Locker shares recently registered a technically oversold signal as the shares shed almost 10% in returns from their highs earlier in the month. Now, FL stock is sitting in a similar situation to what the market saw in early November before Foot Locker went on a 17% rally.
The current technically oversold reading from FL stock’s RSI is combining with potential support from the shares’ 50-day moving average. This same powerful technical support combination triggered a move higher after Foot Locker stock consolidated at $68 in November.
We noticed that short interest on FL stock rose by 5% in the most recent report. While the short interest ratio for the stock isn’t high enough to warrant a short covering rally on a break higher, the addition of short interest tells us that the market has been building the Wall of Worry for Foot Locker shares, which will help in a potential technical bounce. For now, watch the $72-level as support for FL stock with a short-term target of $80.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
