The bulls and the bears have been locked in an epic slugfest since last summer, when the NYSE Composite Index entered its long, stomach-churning trading range.
A lack of clarity on issues like the situation in Greece, the underlying health of the U.S. economy (removing the weather’s impact) and the pace and timing of the Federal Reserve’s interest rate hikes have all kept things in stasis.
But that looks set to change.
Over the past two months, the NYSE Composite has rallied nearly 4% to move right up to critical overhead resistance that’s been tested no less than five times. A upward breakout looks likely as the Fed seems set to push back the timing of its rate liftoff (given weak inflation and a slowdown in job growth) while emerging market economies look set for a rebound.
If so, these three Dow Jones Industrial Average components should surge out of recent downtrend patterns — making these blue chips attractive long plays.
3 Dow Blue Chips Ready to Surge: Caterpillar Inc (CAT)
Caterpillar Inc (NYSE:CAT) stock is in the midst of pushing out if a year-to-date pennant formation with double-bottom support at its January and March lows.
Shares of the heavy equipment maker have been on the slide since July, when they topped out at $109.54 before falling to a low of $78.19 for a loss of nearly 29%, as sentiment was hit by the combination of energy price weakness (hitting demand from the oil and gas industry) and slowdowns in emerging market economies (especially China).
But with crude stabilizing in recent months, and hopes growing that the Chinese will unleash another round of monetary policy stimulus, shares look ready for a run at their 200-day average near $94 — which would be worth a 14% gain from here.
Edge Pro subscribers are participating with a position in the Apr $82.50 calls.
3 Dow Blue Chips Ready to Surge: Intel Corporation (INTC)
Shares of Intel Corporation (NASDAQ:INTC) got a boost in late March on reports it was looking to acquire Altera Corporation (NASDAQ:ALTR), which balked at Intel’s offer. Since then, ALTR shareholders are clamoring for management to reconsider the deal.
Semiconductor stocks in general have been getting a lift in recent weeks on anticipation of an inventory restocking surge on an improvement in demand and a thin supply chain.
Edge Pro subscribers are enjoying a 30%-plus gain in their April INTC calls while Edge subscribers are playing the theme via the ProShares Ultra Semiconductors ETF (NYSEARCA:USD). A return to the 200-day average would be worth a gain of around 8%.
3 Dow Blue Chips Ready to Surge: Procter & Gamble Co (PG)
Procter & Gamble Co (NYSE:PG) suffered a 13% peak-to-trough decline from its December highs as the drag from a stronger dollar weighed on the value of foreign-earned profits. Now, shares are coiling up for a breakout from a tightening consolidation range going back to January.
Shares got a lift in in the middle of March on a Bloomberg report that company was exploring the sale or IPO of its beauty brands. We’ll know more when the company reports results on April 23.
Edge Pro subscribers are playing along with a call option position in anticipation of a move to fill the gap near $88 per share — which would be worth a 5% move from here. Shares of PG stock also offer a 3.1% dividend yield.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.
