These 3 stocks are Dow 'dogs' to sell
Weak technicals, sentiment and fundamentals are weighing on a few components of the index.
By Anthony Mirhaydari
Don't look now, but the Dow Jones Industrial Average ($INDU) is suffering a technical breakdown.
On Tuesday, the index crashed unceremoniously through its 50-day moving average -- a level that has held it up for two months after not one, not two, not three but four separate tests.
The bulls have their buy orders locked in at this level. Can the bears overrun them?
Yes, the Dow is rebounding some Wednesday. But given all the other evidence, including technical (weak volume and breadth), sentiment (options prices on the "fear gauge" is at the lowest level in at least eight years), and fundamentals (economic data has been weak both here at home and overseas), I think they will.
And if so, these three dogs of the Dow are headed for trouble.
Like the Dow Jones, chipmaker Intel (INTC) has fallen to rest on its 50-day moving average -- a level that it hasn't breached in a meaningful way since January's market selloff driven by fears over emerging markets.
Intel has been struggling since early April, which is when the overall semiconductor sector started to underperform the broad market to an extent not seen since the October-January period.
With the percentage price oscillator indicator about to drop into negative territory, I'm looking for a downside break of the 50-day MA with a price target on the 200-day moving average near $24 -- which would be worth a near 8 percent drop from current levels.
I recommended the May $27 INTC puts to my Edge Pro clients earlier this month, which ended with a near 30 percent gain.
After ripping higher between February and April to test its early December high, Wal-Mart (WMT) is coming under pressure after reporting weaker-than-expected earnings last week.
Earnings per share came in at $1.10 versus the $1.15 that was expected while revenue missed at $115 billion vs. $115.9 billion expected. But the kicker was a drop in U.S. same-store sales, suggesting that the consumer is under pressure.
A drop to test two-year support near $72 looks likely, which will be worth about a 5 percent decline from here.
International Business Machines
As the most heavily weighted component of the price-weighted Dow, IBM (IBM) has an outsized influence on the direction of the overall index.
After peaking in early April, IBM has been a drag, dropping more than 6% from its high after reporting weaker-than-expected first quarter revenues on a double-digit decline in its emerging markets business.
I'm looking for a drop back to support near the triple-bottom low near $170 set in October, December and February. That'll be worth an 8 percent-plus decline from here.
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I'm long all three of these stocks.
Good dividend, good entry price, good long term prospects. I'll post back in 6 months, and we'll see who is right.
You did accomplish one think though; you got that silly article about smashed optimism off the top of the list. Dow is up 150 right after you wrote it.
Yup all I need is an "explanation why" the Markets are up about 1% today and not a bad ride.
Well all except the RUT2K, which is a "little disturbing."
I guess I'm good...Don't really need it...!
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An interest rate tease in The Wall Street Journal sends the market into an optimistic tizzy -- but one that doesn't end quite at the top.
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