I'm fairly certain that the script was referring to the San Fernando Valley in general when referring to the "Northwest Valley."
Here are the three main reasons I came to this conclusion:
First, in the scene where the main character, Jake, visits the Los Angeles County hall of records, the clerk somewhat curtly informs Jake that a portion of said valley is in Ventura County and a portion is in Los Angeles County. This seems to pretty much jibe with the following contemporary map (taken from the 2010 Rand McNally Road Atlas - note the subject county lines depicted near the upper-left corner of the image):
Second, the movie depicts orange groves as being present in said "Northwest Valley." This reference indicates that orange groves were prevalent in the San Fernando Valley during the time frame of the movie's events.
Third, near the end of the movie, Jake is informed that rich investors are buying out farmers in said "Northwest Valley" with the intention of providing water to the valley, then annexing same into the City of Los Angeles. This sounds a lot like the actions of the the "San Fernando Syndicate" described here.