2 Dow Stocks That Survived Earnings

04/29/2014 6:00 am EST


Thomas Aspray

, Professional Trader & Analyst

Although this earnings season was widely expected to be weak, it has gone better than most pundits thought. However, investors are still nervous, so MoneyShow’s Tom Aspray has two recommendations to calm their jittery nerves.

The selling last Friday was heavy but seemed to be well controlled, unlike some of the prior sharp down days we have had in 2014. That does not mean we will not see more selling this week, but if the support levels outlined in Friday’s Week Ahead column do not hold by mid-week, a test of the recent lows is possible.

The sharp drop in the iShares Russell 2000 ETF (IWM) suggests that investors are nervous. Typically, when that happens the money flows to the well-known large-cap companies. Last week’s action also demonstrated that the market is driven by earnings.

Therefore, in my opinion the best stocks to look at in the current environment are those that have positive long-term charts and volume patterns, which have already released their earnings. These two Dow stocks fit the bill, as well as offering nice yields, and they look attractive for new purchase if they reach my recommended buying zones.

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Chart Analysis: Boeing Company (BA) reported positive earnings last week as revenues increased by 8% and operating cash flow also increased nicely. The stock yields 2.3%, which is more than the S&P 500, and they could hike their dividend further.

  • BA exceeded its monthly starc+ band last November and also exceeded it in January when it made an all-time high of $144.57.
  • With last Friday’s close at $128.66, it was down 11% from the January high.
  • The ranges on the monthly chart have been quite tight over the past three months with support at $118.77.
  • Last September, BA surged above the 2007 highs, line a, which is quite bullish.
  • The monthly relative performance broke its downtrend, line b, in April 2013 and led the price breakout by four months.
  • The RS line looks ready to turn back up this month and its WMA is clearly rising.
  • The monthly OBV moved above its 2007 high last October (line d), confirming the price action.
  • It still looks strong and is well above its rising WMA and long-term support at line e.
  • Over the past three months, BA has made slightly higher monthly highs with the current April high at $131.55.

The weekly chart shows that it formed a doji last week, which increases the chances that we will see some selling this week.

  • Using current data, the monthly pivot for May is at $127.36 with the projected monthly support at $123.22.
  • On the weekly chart, the year’s low at $118.77 corresponds to line f.
  • The weekly starc- band is at $114.57.
  • The weekly relative performance broke its uptrend, line g, in early 2014 after confirming the new highs.
  • The RS line has turned up and is now testing its still declining WMA.
  • The on-balance volume has held up better than prices after confirming the early-January highs.
  • The OBV closed last week above its WMA and there is major resistance at line h.
  • There is longer-term support for the OBV at line i.
  • On the daily chart, the 20-day EMA is at $126.82 with the daily starc- band at $124.26.

NEXT PAGE: 1 More Attractive Dow Stock


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Coca-Cola (KO) earnings were in line with expectations while revenue was better than expected. The stock has a current yield of 3%.

  • The monthly chart shows that the support from the 2002 and 2007 highs, line a, was tested with February’s low at $36.89. Last October the monthly low was $36.83.
  • April is setting up for a strong close with the previous swing high at $41.38.
  • For May, the monthly starc+ band will be at $44.32.
  • The relative performance has turned up but is still well below its WMA.
  • The RS line did form negative divergences, line b, at the recent highs.
  • The monthly on-balance volume (OBV) moved above the 2007 highs in February 2013.
  • It then retested the breakout level in February before moving sharply higher and leading prices higher.

The weekly chart of Coca-Cola (KO) reveals that the downtrend from the May 2013 and January 2014 highs was broken two weeks ago.

  • The close last week was not far below the weekly starc+ band, which is at $41.67 this week.
  • For May, the monthly pivot should be close to $40.02 with the monthly projected pivot support at $39.03.
  • The 20-week EMA is at $39.16 with the daily EMA at $39.75.
  • The quarterly pivot support is at $38.72, which is close to the 50% Fibonacci retracement support using last week’s high.
  • The weekly RS line shows a pattern of lower highs, line g, but has just moved above its WMA.
  • It therefore shows a potential bottom formation while the daily (not shown) does appear to have already bottomed, so KO may already be a market leader.
  • The weekly OBV has broken out well above the resistance, line h, that goes back to the June 2012 highs.
  • It is acting stronger than prices as is the daily OBV.

What It Means: In a recent trading lesson, 4 Dow Stocks Under Accumulation, I recommended International Business Machines (IBM), Du Pont Co. (DD), McDonald's Corp. (MCD), and Walt Disney Co. (DIS). Our initial buy levels have been hit in MCD and DIS, but not in DD. Both of the buy levels were hit on IBM’s post-earnings drop. The orders are open through the middle of May. Here is the full Charts in Play portfolio.

With the yield on the 10-year T-note still locked in its trading range (see chart), the yields along with the growth potential and strong charts, makes these two Dow stocks look attractive.

For Boeing Company (BA), a shallower setback is needed to provide a good entry level while the recent surge in Coca-Cola (KO) requires a more extensive correction to reach a buy level where the risk can be well controlled.

How to Profit: For Boeing Company (BA), go 50% long at $127.32 and 50% long at $125.70, with a stop at $120.87 (risk of approx. 4.5%).

For Coca-Cola (KO), go 50% long at $39.84 and 50% long at $39.14, with a stop at $37.77 (risk of approx. 4.3%).

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