The Dow Jones Industrial Average is up by a little more than 12% year-to-date and still very close to the all-time high of 14887.50 set back on April 11. As such, I think it’s a good time to scan the index for components that are sitting on thin support that, if broken, could lead to a quick slide lower. To broaden out the selection somewhat more, I have focused on three different industries.
My search came up with three blue-chip stocks with shaky technical foundations. Here’s a look:
After a vicious decline off its April 2010 highs, HPQ finally found a bounceable bottom in November 2012, from where it proceeded to rally 110% in 4.5 months, topping out on April 1 of this year. The recent slide off the highs brought the stock below its November 2012 uptrend, as well as its 50-day simple moving average. Additionally, over the past 10 trading sessions, HPQ developed a so-called bear-flag pattern, which as the name suggests, usually resolves to the downside.
A break below $19.50 could get Hewlett-Packard moving toward its 200-day simple moving average around $17.30.
Procter & Gamble
Click to Enlarge Next up, representing the consumer staples space is Proctor & Gamble (NYSE:PG). Since the stock’s post-earnings drop April 24, it managed to consolidate right above the key diagonal support line near $76.30. The consolidation form here is also taking the shape of a bear flag formation.
In short, should PG drop below the diagonal support line — and thus also out of the bear flag formation — the stock likely will accelerate to the downside.
The stock’s November 2012 uptrend remains intact, reinforced by its 50-day simple moving average. The stock’s steep angle of decline off its April highs increases the odds that the stock will eventually slice through this layer of support (around $28.80-$28.90).
If it does, downside acceleration should increase, and PFE could fall at least 5% before next support.
For a quick recap of these picks and one more, check out this video.