Sometimes you have to simply call it like you see it. And when it comes to the price charts of Dow stocks 3M (NYSE:MMM), Walgreens (NASDAQ:WBA) and Johnson & Johnson (NYSE:JNJ), sometimes a possible Dog of the Dow is quite simply a dog with fleas worth shorting. Let me explain.
Despite historical bearish influences for the calendar month of September, 2019 has been a solid one for bullish investors and most Dow stocks, including shares of MMM, WBA and JNJ stock. And truthfully, it’s not that surprising for investors listening to the market’s price charts rather than fearful headlines.
Following a challenging August attributed to then rising trade war fears and an inverted-yield curve drumming up recession concerns, a mid-month bullish follow-through day has parlayed into price action which has seen the Dow Jones Industrial Average climb by 2.50% in September with just over a handful of trading sessions left for the month.
But while the market’s rising tide and uplifted mood has done wonders for 2019’s September outlier, doggish Dow stocks MMM, WBA and JNJ remain technically in the dog house and unworthy of investors’ attention … unless you’re looking for an opportune short to hedge your portfolio with. With that in mind, here’s how you should approach these three stocks today.
Dow Stocks to Sell: 3M (MMM)
This year, MMM stock is off around 12% and there’s nothing to suggest that shares are anywhere near a bottom. In fact, 3M shares are shaping up as a pattern short.
Currently, this Dow stock is putting together a bearish flag formation set against overhead and trendline resistance that’s failed to hold a pair of long-term 38% Fibonacci supports. More troubling, MMM’s well-entrenched oversold stochastics indicator looks ready to slide lower once again.
If you believe the trend is your friend, the bearish one in MMM stock is readying for short positions. I’d recommend watching this Dow stock for a move beneath $157 for triggering an entry. That’s 6% below current levels but allows for some pattern confirmation and trend reassertion to occur before shorting shares.
As for a price target to take profits, $135 – $140 is the next zone where Fibonacci and trendline support could turn MMM stock around and a good spot for managing the position. Likewise, I’d elect to use a cross of September’s opening price of $161.40 to contain risk and ensure this dog doesn’t learn a new trick to the detriment of this short position.
Drug store giant Walgreens is actually the Dow Jones’ worst performer in 2019, with WBA stock down 20%. But again, sometimes the Dogs of the Dow need to be looked at for price action and not dividends.
WBA is another situation where shares have technically broken former trend supports and key Fibonacci support. Similarly, this Dow stock is also facing overhead resistance as shares carve out a bearish flag pattern. As such, today’s 3.35% income stream teaser is money worth paying out for the cost of a short position if shares break below pattern support.
For WBA stock I’d advise shorting shares on a breakdown below $49.80. That’s beneath angular support and fractionally under September’s low price in this Dow stock. The entry is away from today’s price action, but should it come into play, the fourth quarter of 2019 could make this sickly performer look deathly ill and very profitable for bearish positions.
Johnson & Johnson (JNJ)
Johnson & Johnson has been the worst performer of our Dow stocks from a doggish perspective. Shares are actually clinging to a positive return of 0.82% in 2019. But this one looks all but ready to rollover on the price chart.
Technically, JNJ stock has been showing signs of weakness since 2018 while putting together new, but more volatile highs after a mostly benign and lengthy uptrend. The marked up monthly view of this Dow stock shows a bearish divergence in the stochastics indicator as the price action has ultimately resulted in a lower high pattern.
And while Johnson & Johnson’s uptrend is still intact, if all new trends must start somewhere, today’s barely positive price performance looks like a first sign of more troubling price action to close out the year.
With a larger-than-normal amount of headline risks tied to cancer-based lawsuits against the company’s talcum powder and its responsibility within the opioid crisis, I’d recommend using a limited risk bear put spread to reduce and define exposure to a guaranteed and predefined amount.
One favored spread that covers those bases is the March $115 / $100 put spread. This vertical is priced for $1.45 or just over 1% stock risk and offers big-time profit potential of around $13.55 and a maximum return of 935% if JNJ loses 23% or more over the next six months and through expiration.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in securities 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 and StockTwits.