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:
Click to Enlarge First up, Hewlett Packard (NYSE:HPQ) — a member of the technology sector.
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.
Click to Enlarge Last but not least, here’s a look at pharmaceutical giant Pfizer (NYSE:PFE).
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.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter here.