Do you want more yield from your blue chips like those found within the Dow Jones Industrial Average?
Well, you certainly can get that — and earn some extra profits first by positioning yourself as a bear in a technically doggish-looking chart.
After viewing all 30 Dow Jones components, I came up with 10 names sporting technically bearish “death cross” formations wherein the 50-day simple moving average has crossed below the long-term 200-day SMA.
I then looked for additional bearish patterns on the charts worthy of lower share prices, and came up with three ugly names to put on your trading radar.
Better yet? After profiting on these bearish plays in the short term, some of these higher-yielding Dow Jones stocks might be worth a longer-term buy, a la the Dogs of the Dow approach to investing.
But first things first — let’s look at these bearish trades.
Dow Jones Stocks Facing Death Crosses: Wal-Mart Stores, Inc. (WMT)
First on the list of Dow Jones stocks facing death crosses is Wal-Mart Stores, Inc. (NYSE:WMT).
For disclosure, I was caught flat-footed technically back in late March as shares of WMT pulled back into major weekly chart support which failed to hold. However, the ensuing price action has done nothing but to confirm continued weakness in WMT stock. Not only does the Dow Jones component stock sport a death cross that signaled recently (on a daily basis — the above is the stock’s weekly chart, which provides a better picture of the price action), but shares were pushed below lateral trading support on Tuesday, and that was confirmed by heavy distribution.
The reason behind Tuesday’s bearish activity in Walmart stock: a weak earnings report.
After breaking below its tight range support of the past five weeks, the next stop looks to be about $4.50 lower to $72. Were that to occur, shares would be yielding roughly 2.7% compared to today’s 2.5%.
For $1, the July $75 put is premium priced at a discount to the underlying volatility in WMT stock. The profit potential is 200% on an expiration basis if Walmart were to make its way down to the $72 price level in the next 60 days.
Dow Jones Stocks Facing Death Crosses: Intel Corporation (INTC)
Dow Jones constituent Intel Corporation (NASDAQ:INTC) established a death cross back in March. Nonetheless, subsequent price action in INTC stock has been mostly higher. In fact, shares are currently wedged between both key moving averages, but we think that’s to the bears advantage.
However, the counter-trend rally in this Dow Jones stock has developed a potential right shoulder as part of a head-and-shoulder topping pattern. Currently sporting a dividend yield of 2.9%, if INTC shares were to test its neckline near $29.25, the corresponding payout would improve to 3.3%.
Using a conservative measured move from the pattern head to neckline, I came up with a projected price of $22.50 for INTC stock. A long Oct $31 put for $1.10 — with a stop-loss above the 200-day simple moving average and plenty of time to take advantage of a potential move lower — looks attractively priced.
Dow Jones Stocks Facing Death Crosses: The Coca-Cola Co (KO)
As the daily chart of Dow Jones component The Coca-Cola Co (NYSE:KO) shows, KO stock has been anything but “it” with bulls in recent months. A swift bearish breakdown in March helped establish its death cross. More recent, price action in KO has resulted in a bear flag developing around a second uptrend line drawn on the chart.
The bear flag highs in shares of KO last week were contained by the 200-day simple moving average, which puts a possible lid on this pattern. An actual breakdown of the flag doesn’t appear to have much on the chart to keep KO stock from retesting its two-year lows of $36.89 set early in 2014.
Down the road, a bearish price move in KO stock to $36.89 would push the dividend yield from 3.2% to a bubblier 3.6%.
With earnings still a couple months out, and with fairly cheap premiums and a lot of time to expiration, the Nov $39 put for 97 cents in this Dow Jones stock looks well-priced.
The KO Nov $39 put can easily realize a double or better upon expiration if shares of this Dow Jones component move to $36.89.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
