A proven technical measure suggests that selling pressure is likely to subside for these Dow leaders in the weeks ahead, possibly leading to some good buying opportunities.
The selling was heavy on Monday, and early Tuesday, overseas markets are also sharply lower. Clearly, there are no signs yet that the market has bottomed, though as I have noted recently, the sentiment measures are reaching levels that are more consistent with a market bottom than a market top.
Not all stocks bottom or top out together, so for those investing or trading individual stocks, a different approach is needed than if you are trading a market-tracking ETF like the Spyder Trust (SPY).
Starc band analysis can be very helpful—as recently demonstrated by the gold market—in identifying high- and low-risk buy or sell zones. The table above lists the ten most oversold Dow stocks based on the proximity to their monthly Starc- band as of the end of September.
The oversold column reflects the percentage that the stock is above its monthly Starc- band. For example, Caterpillar Inc. (CAT) closed last Friday (Sept. 30) at $73.84, just 0.3% above the monthly Starc- band at $73.64. CAT was down sharply Monday to $70.55 and is now well below its monthly Starc- band.
Chart Analysis: Caterpillar Inc. (CAT) tested its monthly Starc+ band for four months early in the year, reaching its high of $116.55. With Monday's close, it is now down 39.4% from its 2011 high.
The long-term outlook for the 3M Company (MMM) is a bit less positive. The decline from the July highs at $98.19 has been quite sharp. There is a level of good support on the monthly chart, line c, in the $66.60 area with the major 61.8% support at $62.90.
NEXT: Latest Chart Patterns for Dow Leaders Disney, Alcoa