This week I’d like to coddiwomple through making mistakes and staying data-dependent to gain a...
3 Large Caps With Big Potential
03/05/2013 10:30 am EST
As the Dow hit an historic all-time high in early trading today, MoneyShow’s Tom Aspray looks for opportunities in a heretofore lagging sector that seems to have bottomed out.
Stocks ended in positive territory by Monday’s close as the major averages were able to absorb two different waves of selling. The weak opening in the Dow tracking SPDR Dow Jones Industrial Average ETF (DIA) was followed by a brief bounce and then another test of the lows before DIA rallied for the next three hours to close near the day’s highs.
The improvement in the relative performance of the Dow Industrials over the past two weeks indicates it is ready to outperform the S&P 500. In yesterday’s The Most Oversold Dow Stocks, DIA was listed as the seventh most oversold. The daily Dow Industrials A/D line made new multi-year highs Monday, which is also a positive sign.
Many of the large-cap stocks have been lagging the market for some time and the long-term charts indicate that they are close to completing major flag or continuation patterns. The bottoming action in the technical indicators as well as their closeness to Fibonacci and long-term pivot support makes these high yielding stocks look attractive.
Chart Analysis: The weekly chart of E.I. du Pont de Nemours (DD) shows a long-term flag or triangle formation, lines a and b, that goes back to the 2011 high of $57.00.
- Two weeks ago, DD dropped to test the quarterly pivot at $46.05 (blue line) before turning higher.
- The correction held above the 38.2% Fibonacci retracement support at $45.80.
- There is next strong resistance at $50.34 to $52.33 with the weekly downtrend at $51.74.
- The completion of the flag formation has measured targets in the $63-$65 area.
- The relative performance closed last week above its WMA and shows a potential bottoming formation, lines d.
- A move through the downtrend in the RS (line c) would be positive.
- The weekly OBV surged through year-long resistance, line e, in early 2013 and retested the breakout level last week.
- OXY traded as high as $88.52 in early February and dropped over 8% to a low last week of $81.11.
- The correction has held above the 50% Fibonacci retracement support at $80.58.
- The quarterly pivot is at $79.11 with the 61.8% support at $78.63.
- Once above the February highs, the weekly downtrend, line f, is at $93.
- The initial upside targets from the triangle formation are in the $120-$126 area.
- The weekly relative performance broke its downtrend, line h, in January but has now dropped below its WMA.
- The weekly OBV moved above its WMA in January and moved through its downtrend, line i, in February.
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- NUE had a high two weeks ago at $48.60 and hit a low last week of $43.41.
- The decline has taken NUE just slightly below the minor 50% retracement support at $43.72.
- This was over a 10% correction and NUE is close to its weekly starc- band and the quarterly pivot at $42.46.
- The initial measured target from the triangle formation is in the $54-56 area.
- The relative performance completed its bottom formation in December as it moved above its previous highs (dashed lines).
- The downtrend in the RS (line c) was broken at the end of December.
- The weekly on-balance volume (OBV) broke out in early January and it has now pulled back to its uptrend and its WMA.
- Both of the weekly studies have reached important support and need a higher weekly close in the next two weeks to signal that a bottom is in place.
What it Means: As I discussed in the recent Week Ahead column, the technical evidence indicates that this is the time to be buying not selling. In particular the large-cap stocks appear to offer the best opportunities.
Both E.I. du Pont de Nemours (DD) and Occidental Petroleum Corp. (OXY) have dropped back to converging levels of support and show long-term continuation patterns. Both have reached important support so the risk and the reward on these high yielding stocks look attractive.
Should already be 50% long Nucor Corp. (NUE) and still would buy. If filled, the plan is to take initial profits at the first upside targets.
How to Profit: For E.I. du Pont de Nemours (DD), go 50% long at $47.88 and 50% long at $47.24, with a stop at $44.86 (risk of approx. 5.7% ).
For Occidental Petroleum Corp. (OXY), go 50% long at $81.88 or better and 50% long at $81.34, with a stop at $78.12 ( risk of approx.4.3% ).
Should be 50% long Nucor Corp. (NUE) at $44.84 and added 50% long at $43.96 late last month. Keep the stop at $42.17 and would still go 50% long NUE at $44.84 or better.
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