5 Dow Jones Heavyweights on the Ropes

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If you only pay attention to the evening news mega-cap indices like the Dow Jones Industrial Average and the S&P 500, things looked pretty good. Both were testing new record highs on Friday amid enthusiasm over the Scottish “no” vote on independence and the Alibaba (BABA) IPO.

dow jones stocksBut other measures of the market, such as the Russell 2000 small-cap index, the NYSE Composite or foreign stock representatives like the iShares MSCI Emerging Markets ETF (EEM), have all been telling a very different story. And that story was that the market was, below the surface, much weaker than it appeared.

Indeed, despite the Dow’s record high on Friday, just 40% of the stocks on the NYSE moved higher. That’s a sign of narrow participation.

And it’s a warning that the gains are unsustainable.

That weakness was manifesting Monday, with the Russell 2000 completing a “death cross” pattern — as its 50-day moving average passes below its 200-day moving average — while emerging-market stocks are dropping with a severity not seen since January.

The big boys can’t ignore the weakness hitting the rest of the market anymore. Here are five Dow components that are already in trouble — presenting attractive short-side or put option candidates.

Weak Dow Jones Stocks – American Express (AXP)

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American Express (AXP), the well-known provider of consumer credit and payment cards, has been drifting sideways all year long, mired in a range between $82 and $96.

The range has tightened over the last two months, keeping AXP shares between $91 and $87 as it has tried desperately to hold onto its 200-day moving average.

Shares have moved back below that threshold on Monday, threatening to break below a level that it hasn’t suffered a significant decline below since 2011.

I’ve recommended the Oct $87.50 AXP put options to my Edge Prosubscribers, which are just getting going. The contracts are up 6% already, with room for much more in the days to come.

Weak Dow Jones Stocks – Boeing (BA)

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Boeing (BA) has been losing altitude since November, stuck in an ambling downtrend pattern that has seen a pattern of lower highs and lower lows. That has come amid a rebound in the fortunes of global airlines has given way to concerns about overcapacity, aging fleets and viability of Boeing’s financing subsidy from the Export-Import Bank.

Shares look ready for another move to test support near $118 a share, which would be worth a 9% drop from here.

Weak Dow Jones Stocks – Caterpillar (CAT)

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Caterpillar (CAT) has been hit by the weakness in emerging-market economies, with China in particular disappointing lately with soft industrial production data.

With Europe and Japan also suffering from disappointing growth, the global demand for Caterpillar’s heavy machinery looks at risk.

Shares have been consolidating between $100 and $110 a share since April, forming a rough head-and-shoulders reversal pattern. With a neckline at $100 a share, a violation could see shares drop all the way to near $91 a share — a drop of 10% from here.

Weak Dow Jones Stocks – United Technologies (UTX)

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When Dow Jones stocks like United Technologies (UTX) start underperforming — a massive, diversified industrial conglomerate with operations from Otis elevators to airlines — you know that it’s a sign of deeper trouble in the economy.

Sure, social media and smartphones get all the glory. But it’s hard-metal businesses like UTX that are the real source of strength and robust growth.

UTX, like the Russell 2000, suffered a death cross of its own last month and has been unable to even regain its 50-day moving average since losing it back in July. A test of support at the low near $102.50 looks like the next stop, 4% down from here.

If that fails, we could be looking at a 8% drop to levels seen in August 2013.

Weak Dow Jones Stocks – Exxon Mobil (XOM)

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Owing to the recent weakness in crude oil prices, the energy sector has been a soft spot in the Dow Jones’ charge to new record highs.

You can see this in the way Exxon Mobil (XOM) stock has been languishing since May and has been on the slide since July. Shares have been below their 200-day moving average for three weeks — the longest move below that level since last September/October.

With crude continuing to decline on strength in the U.S. dollar and worries about the health of the global economy, a move to support at $92 looks likely. The Oct $97.50 puts I recommended to Edge Pro clients back on Sept. 4 were already culled for a 110% profit earlier this month and are currently carrying a gain of nearly 50%.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/dow-jones-axp-ba-cat-xom-utx/.

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