The 4 most overbought Dow stocks
Proven technical measures show that it's a high-risk time to buy these market leaders.
- The weekly downtrend, line a, is currently at $28.16
- The 18-month downtrend in the relative performance, or RS analysis, line c, has just been broken, suggesting that after many years lagging the S&P 500, MSFT may once again become a market leader
- The action of the weekly on-balance volume (OBV) is less impressive, and while it is back above its weighted moving average (WMA), it is well below its downtrend, line d
- The daily OBV (not shown) is positive, but it is also below its major resistance
- There is first good support for MSFT at $24.80-$25.05
- In late January (point 1), IBM surged above the weekly Starc+ band and traded above it for the ensuing two weeks
- Just five weeks later, IBM was about 10% lower and had reached the Starc- band (point 2)
- There is initial support at the uptrend, line e, which was briefly violated in June. It is currently at $170. More important support is at $165-$166
- The RS analysis continues to look strong, as it is rising sharply after breaking through resistance, line f, early in the year
- This indicates that IBM should continue to outperform the market. The longer-term RS support, line g, is well below current levels
- The weekly OBV did confirm the recent highs and shows a long-term uptrend, line h
- This week, the Starc+ band is at $87.70, and MCD closed Thursday at $85.81. The weekly Starc+ band was also tested in late May (point 2), which was followed by sideways trading for the next few weeks
- The weekly Starc- band was reached in mid-January (point 1), which marked MCD’s low for the year
- The RS broke through its downtrend, line b, on May 14 and has risen sharply since. During this period, MCD is up 6.3% while the S&P 500 is down 2.1%
- The OBV looks strong but has not yet exceeded the May highs, line c. The OBV is well above its uptrend, line d. The daily OBV (not shown) did confirm the recent highs
- There is first support for KO at $66.25 with the uptrend, line e, at $65.20
- The RS bottomed in February and has made a series of higher highs and higher lows, line f
- The weekly OBV is looking less positive, as it has not confirmed the recent highs and is likely to close below its weighted moving average this week
- A break of key OBV support at line g would be negative and could signal a decline to the March lows at $61.29
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All hail the bull market, which ended the week with a big rally. But it also is starting to look a little like 1987, which suffered an epic blow-out.
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