Nervous investors took some of the big name Dow Industrial stocks back to more important support in December, and in an analysis of the ten most oversold Dow stocks, Moneyshow’s Tom Aspray has identified some interesting opportunities.
Stocks traded in a fairly narrow range Thursday and the selling was not that heavy. The monthly jobs report today could spur some heavier selling, but I would expect the market to be well supported at lower levels.
Any correction is likely to be over early next week and it should set the stage for a move in the major averages, like the S&P 500, back to the September highs. Therefore any near-term weakness is likely to be a buying opportunity. The action, so far in 2013, increases the odds of a double-digit gain this year.
The monthly starc band analysis of the stocks in the Dow Industrials identifies those stocks that are closest to their starc+ bands (overbought) and those that are closest to their starc- bands (oversold). As I have pointed out in past articles on starc bands, just because a stock or ETF is near its starc- band it does not mean it still cannot go lower. It does indicate that the stock or ETF is at a high risk level to sell and a low risk level to buy.
In last month’s review of the most overbought Dow stocks, I pointed out that Home Depot (HD) had traded near its monthly starc+ band for the past three months. From the December high to low, HD dropped 8.6% before rebounding at the end of the month.
Wal-Mart Stores Inc. (WMT) is the most oversold Dow stock this month as it closed just 6.4% above its monthly starc- band. It has closed lower for the past two months after breaking through ten-year resistance last May. It, along with the other three Dow stocks, look attractive for new purchase at the right price because of their positive monthly analysis.
Chart Analysis: Wal-Mart Stores Inc. (WMT) peaked in October at $77.60 and hit a low last Friday at $67.37, which was a decline of over 13%. The chart reveals that WMT closed above its monthly starc+ band last July and then held firm for several months before correcting.
- There is additional support in the $66.50 area with the quarterly S1 support at $64.50.
- The major breakout level, line a, is at $64 with the monthly starc- band at $63.84.
- The monthly relative performance has just dropped below its WMA but is still above its uptrend.
- This month’s close in the relative performance will therefore be important.
- The monthly OBV is still well above its rising WMA as the OBV staged a major upside breakout in the latter part of 2011.
- There is first resistance at $69.50 with the quarterly pivot at $71.06. A weekly close back above this level would be a positive sign.
- The longer-term uptrend, line d, connects the lows from 2009 and 2010.
- The monthly relative performance did not confirm the highs in July, line f.
- The uptrend in the RS line has been broken and it is well below its flat WMA.
- The monthly OBV looks much stronger as it moved above its WMA in October 2010 and is still positive.
- The weekly OBV (not shown) has turned up but is still below its WMA.
- KO has been strong the first two days of 2013 as it is up 5.6% from the lows.
- The next resistance is at $38-$38.85.
NEXT PAGE: Two More Oversold Dow Stocks