Despite large first-quarter gains, two big Dow stocks show strong monthly chart formations and are worthy of new buying.
The first-quarter gain of over 8% in the Dow Industrials was impressive, but many of the Dow stocks fared much better. One of the most oversold Dow stocks in the October scan was Caterpillar Inc. (CAT), which was up 17.6% in the first quarter, but it trailed the huge 38.2% gain posted by JPMorgan Chase (JPM).
My monthly scan identifies stocks that are closest to either their upper Starc band (Starc+) or lower Starc band (Starc-). Regular readers know that the proximity of a stock’s monthly closing price to its Starc bands is one reliable way to identify overbought and oversold stocks. (For more on Starc bands, please read “Buy, Sell, or Wait: A Way to Decide.”)
Home Depot Inc. (HD) is at the top of the list and was up 19.6% for the first quarter. It ended the month just 1.4% below its monthly Starc+ band. International Business Machines Corp. (IBM) is next on the list, trading just 4.8% below its monthly Starc+ band.
Despite its dramatic run in the first quarter, JPMorgan Chase (JPM) is still 6.2% below its monthly Starc+ band. It is also important to note that JPM is 45.6% above its monthly Starc- band.
An added benefit of this analysis is that it forces me to more carefully look at the monthly charts, which can often help to identify stocks that are breaking out above long-term resistance or dropping below long-term support. The monthly price ranges can often help determine key support levels that can be used for stop placement. Two of the stocks on the list have very compelling monthly chart formations that warrant new positions.
Chart Analysis: International Business Machines Corp. (IBM) broke out of a ten-year trading range (lines a and b) in early 2010, point 1. It then pulled back for eight months before reaffirming the breakout in September 2010, point 2.