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.
NEXT PAGE: Two More Oversold Dow Stocks
The monthly chart of Johnson and Johnson (JNJ) shows a gradual uptrend for the past two years as the monthly downtrend, line a, was overcome last June.
Verizon Communications Inc. (VZ) spiked above the monthly resistance, line f, in September as it hit a high of $48.77 before the sellers took over.
What it Means: The monthly OBV analysis of all four of these stocks indicates they have been undergoing long-term accumulation. All four have good yields, especially when compared to the low yields of Treasury securities. The risk can be well controlled on these stocks if purchases are made at lower levels.
How to Profit: For Wal-Mart Stores Inc. (WMT), go 50% long at $68.34 and 50% long at $67.72, with a stop at $64.36 (risk of approx. 5.4%).
Prior to Wednesday’s opening, I recommended Johnson and Johnson (JNJ), but the buy levels were not hit. Here are the new buy levels. For Johnson and Johnson (JNJ), go 50% long at $70.24 and 50% long at $69.82, with a stop at $67.66 (risk of approx. 3.2%).
For Verizon Communications Inc. (VZ), go 50% long at $43.64 and 50% long at $43.22 with a stop at $41.87 (risk of approx. 3.6%).
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