Two Dow Stocks Turning the Corner

By MoneyShow.com  FEB 25, 2013 3:15 PM

The US stock market opened strongly this morning, bouncing back after a sharp two-day pullback last week. Tom Aspray's analysis suggests large-cap stocks may lead the next rally phase and he has two favorite Dow stocks.

 


The stock market put in a strong performance Friday with almost 3,000 advancing stocks vs. less than 1,000 declining stocks. The sharp rebound from last Thursday's early slide makes the second scenario outlined last week now look more likely.

The Dow Industrials (INDEXDJX:.DJI) picked up strength last week as it did close higher for the week unlike the S&P 500 (INDEXSP:.INX) or Nasdaq 100 (INDEXNASDAQ:NDX). The weekly relative performance analysis has indicated that since early in 2012 the SPDR Diamond Trust (NYSEARCA:DIA) has been underperforming the S&P 500.

Since the start of 2012 the Spyder Trust (NYSEARCA:SPY) is up 21% versus just a 14.7% gain for the SPDR Diamond Trust. There are now some early signs that this may be changing. Another strong close Monday should signal a rally above last week's highs similar to what happened in March 2012.

The German DAX Index (INDEXDB:DAX) is very strong early Monday and looks ready to complete its corrective pattern as it continues to lead the US market higher. The stock index futures are also showing nice gains in early trading.

Two stocks look ready to help lead the Dow Industrials higher as they have strong weekly technical patterns.

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Chart Analysis: The weekly chart of the SPDR Diamond Trust shows that it dropped to its lowest level of the month last Thursday at $138.06.

The weekly chart of International Business Machines (NYSE:IBM) shows a broad trading range, lines e and f, that goes back to early 2012.



Click to enlarge

The weekly chart of McDonald's Corporation (NYSE:MCD) broke its weekly downtrend, line a, in the middle of last month.

What It Means

Hewlett Packard Company (NYSE:HPQ) gave the Dow an unexpected boost last week, but there are quite a few other Dow stocks like IBM and MCD that appear to have completed their corrections.

The strong weekly and monthly OBV analysis supports a bullish outlook. IBM hit the initial buy level from early February and those not long could still buy it. MCD also looks favorable and currently yields 3.20%

How to Profit:

For the SPDR Diamond Trust, go 50% long at $139.56 and 50% long at $138.74, with a stop at $134.91 (risk of 3%). On a move above $142, raise the stop to $137.84.

For International Business Machines, per the February 4 column, should be 50% long at $198.16 (the 2/21 low was $198.11), add 50% long at $200.44. Use a stop at $194.55.

For McDonald's Corporation, go 50% long at $94.72 and 50% long at $94.04. Use a stop at $90.44 (risk of 4.1%).

Editor's Note: This article was written by Tom Aspray of MoneyShow.

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