Investors love celebrating the Dow Jones Industrials and its cadre of blue-chip stocks. But not all blue-chip stocks are created equal. Many aren’t even in the Dow, but you know who they are. While some are in the venerable market barometer or making us feel more secure on the nightly news, three names within this broader group are showing signs of technical wear-and-tear worthy of selling or shorting today.
More important to the definition of a blue-chip than which index it resides is the company’s tenured and excellent reputation. That’s not to say that standing can’t be compromised. Aircraft giant and Dow member Boeing (NYSE:BA) is a prime example of even the most dearly-held blue-chips not proving immune to big-time challenges.
What’s all that have to do with investing right now? The market is at record highs and the Dow is up 12,000 points from its March low! That dramatic point total is one instance that should have your attention for something other than blue-chips to buy.
We have three blue-chips showing certain signs of technical fatigue. Consider taking profits or even short exposure to benefit from price weakness to come.
Blue-Chip Stocks to Sell: Moderna (MRNA)
Source: Charts by TradingView
The first of our blue-chip stocks to sell or short is Moderna. In the socially-distanced reality of 2020, Moderna has been a glimmering beacon of hope. The drug manufacturer’s Covid-19 vaccine received an endorsement from the FDA and is expected to receive emergency use authorization as early as next week.
Citizens of the world can appreciatively rejoice at what Moderna is bringing to the market. Technically though, MRNA shares are set up in a classic “sell-the-news” pattern. And that’s bad news for MRNA bulls.
As the weekly price chart reveals, this blue-chip stock has just confirmed an inside doji topping formation. The warning is also ominously backed by a bearish overbought stochastics. In our estimation, profit-taking could lead to a full-blown correction that chips away at this life-saving stock’s burly 600% YTD rally and $62 billion valuation as it challenges Fibonacci-based price support from $95 – $115.
Favored Strategy: January $125/$110 bear put spread
Texas Instruments (TXN)
Source: Charts by TradingView
The next blue-chip stock that’s prone to some trimming (not the tinsel kind) is Texas Instruments. The chip manufacturer has come a long way since offering a handheld calculator as the hot gift of the year decades ago. It’s chips are everywhere from consumer to industrial markets. But its various products don’t make this blue-chip a buy at current levels.
One spied analyst contends TXN stock is overvalued upwards of 23% based on a discounted cash flow valuation. I’m agreeable, or at least the price chart is. The joy of giving in this blue-chip stock may have run its course after delivering investors a bow-wrapped gift of 26% and record highs in 2020.
The monthly chart shows what I’ll call the “bearish Christmas tree pattern.” After eight months of growth in TXN stock that forms the left side of the “tree,” an overbought shooting star outside the upper Bollinger Band has emerged to top the formation. As all stocks are prone to corrections, 2021 looks set to partially undress 2020’s gains by 20% to 30% — without even stirring a mouse.
Favored Strategy: March $150/$135 bear put spread
Home Depot (HD)
Source: Charts by TradingView
I haven’t necessarily saved the best for last, but our final blue-chip stock is one of today’s classics. It’s Dow Jones constituent and retail building supplies giant Home Depot. The chain has benefitted from Covid-19 and all of the lockdown orders. Sales have been filling up the company’s registers this year with double-digit growth as consumers look to nest more comfortably.
To be sure, there’s more to the story of why this blue-chip is where it is today. But a concerning new chapter is developing on the HD stock chart.
Home Depot shares are currently sitting on top of prior channel resistance after breaking steep trendline support. This happened as the stock formed a bearish monthly chart-engulfing candlestick pattern in October. In of itself, it’s a warning.
With December’s price action confirming the candle and stochastics hinting strongly at weaker price action ahead, this double-bagger off its March Covid-driven bottom appears increasingly ripe for a correction entering 2021.
Favored Strategy: March $250/$230 bear put spread
On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
