How do you track movements of all the S&P 500 stocks on any given trading day? In this video, Dave will show you how he uses the StockCharts MarketCarpet to evaluate broad equity market conditions, assess the changes in the mega-cap stocks which dominate the benchmarks, and identify potential outliers that could serve as investment candidates. Enjoy this mini-masterclass on how to use a powerful heat map to better follow the technical analysis trends!

This video originally premiered on October 21, 2024. Watch on our dedicated David Keller page on StockCharts TV!

Previously recorded videos from Dave are available at this link.

When the market is down, you can see which stocks Wall Street may be pumping money into. So on a Monday morning when the markets are down, this allows you to spot stocks that are bucking the intraday trend.

If you go to your Predefined Scans under Bullish Technical Indicators, you can see which stocks are experiencing sizable inflows. Let’s zero in on the Moved Above Upper Bollinger Band list.

FIGURE 1. PREDEFINED SCAN. We’ll focus on the last row, highlighting the stocks that have moved above the upper Bollinger Band on a day when stocks are largely declining.Image source: StockCharts.com. For educational purposes.

Clicking on that selection and arranging the next page by “U” (Universe), the highest large-cap stock with the strongest StockCharts Technical Rank (SCTR) score was Applovin Corp (APP). APP also held the top spot on the Top 10 SCTR Report in the Large Cap, Top 10 category.

FIGURE 2. TOP 10 SCTR STOCKS ON OCTOBER 21, 2024. Applovin occupies the number one position with a 99.9 SCTR score.Image source: StockCharts.com. For educational purposes.

A Little Background on Applovin Corp

Even if you’ve never heard much about Applovin Corp—a tech company specializing in mobile app marketing and monetization solutions—you still will probably recognize the name, as it’s been showing up on the SCTR reports for quite some time.

If you do your research, you’ll find that Wall Street has been exceedingly bullish on this stock for quite some time. You should start with StockCharts’ Symbol Summary; this will give you fundamental and technical info to begin your research. For example, APP’s one-year performance was an impressive +322.7%. But if you’re coming in late to the game and interested in scooping up shares of APP, you’ll have to check the technicals to see where a good entry point might present itself.

Let’s look at a daily chart of APP in light of the Bollinger Bands scan.

Applovin’s Daily Price Action

FIGURE 3. DAILY CHART OF APP. Note the SCTR line over the entire five months (it’s been that high for an even longer period).Chart source: StockCharts.com. For educational purposes.

In the SCTR line and APP’s relative performance against the S&P 500 ($SPX) in the panels above the price chart, note the following:

APP’s SCTR line has been largely above 90, indicating exceeding technical strength over multiple timeframes and indicators.If you look at the blue arrow pointing to relative performance, notice how the SCTR line prefigured APP’s superior performance against the S&P 500 long before it began outperforming the index. Although no indicator is a guarantee, the SCTR line is a strong tool for signaling the potential outperformance of a given stock.

Looking at the price chart, as the Predefined Scan pointed out, APP broke above the upper Bollinger Band, which is set to the second standard deviation. Only in rare cases can any stock maintain such a position. Typically, 90% to 95% of a stock’s price movements occur within the Bollinger Bands. There’s a strong chance of a pullback.

However, once a strong trend gets underway, price will often “walk” the Bollinger Bands—on the upside, it tends to “hug” the upper band, and the opposite is true of a strong downtrend.

The September price action illustrates this dynamic. In this case, it was particularly strong as APP’s “walk” took place above the upper band, signifying strong bullishness as the stock price rallied.

In the case that it pulls back…

Look to the middle Bollinger Band for a potential bounce.If APP’s price falls below the middle band, you will likely find support in the range highlighted by the blue rectangle, as it encompasses a market support level and the area surrounding the lower Bollinger Band.

What does momentum look like?

According to the Chaikin Money Flow (CMF), buying pressure looks strong, even though it’s receding slightly.But a volume-based momentum reading from the Money Flow Index, aka MFI (which is like a volume-weighted Relative Strength Index indicator), shows that it was “overbought” and is now receding, forming a bearish divergence which warns of a pullback.

Meanwhile, APP’s SCTR reading remains strongly bullish. So, if you want to enter a position, keep an eye on the potential support levels outlined in the chart (specifically, the dynamic Bollinger Band levels and the market-based support level in the blue rectangle).

If market conditions change, especially if new and unexpected market factors come into play, then a stop loss a few points below $123 might be sufficient enough for you to reassess the situation and readjust your setup for a new entry point.

Tip: Make StockCharts’ Predefined Scans Part of Your Trading Routine

Incorporating Predefined Scans into your market assessment routine is like having a radar showing which stocks are ready to move. You’ll know what to research, and after that, analyze the stock chart to determine when and where to jump in.

The Bottom Line

Using one of many StockCharts tools to scan the market is a smart and efficient way to get an edge in spotting opportunities. This article focused on stocks that bucked the intraday downtrend. Through a few scans, I found APP, which has been on the top of the SCTR list for quite some time. This type of scan routine can help you find other market prospects in the future. Remember: don’t leave opportunities to chance. Scan early and often.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Carl explores which index is best…the SP600 (IJR) or Russell 2000 (IWM). He makes a comparison over time and reveals which tends to be the better performer. Which one should you use to analyze what is happening in small-caps?

Carl gives us his market outlook as prices pullback today. Bitcoin is looking particularly bullish and Gold continues to impress. He then goes through all of the Magnificent Seven stocks in the short and intermediate terms.

Erin goes through sector rotation to see where the strength and weakness lies within the market. All sectors were pulling back today and PMOs were starting to see strain.

Carl and Erin both took a look at the Energy sector “under the hood” as well as Technology and Materials.

The pair finish with a look at viewers symbol requests which tended to be heavy on the Healthcare sector.

01:13 DP Signal Tables

04:43 Market Overview

14:33 Magnificent Seven Overview (Short and Intermediate terms)

20:16 SP600 (IJR) versus Russell 2000 (IWM)

23:40 Questions (Gold v. SP500, Energy (XLE), Divergences, MSFT)

30:22 Sector Rotation

40:00 Symbol Requests

Introducing the new Scan Alert System!

Delivered to your email box at the end of the market day. You’ll get the results of our proprietary scans that Erin uses to pick her “Diamonds in the Rough” for the DecisionPoint Diamonds Report. Get all of the results and see which ones you like best! Only $29/month! Or, use our free trial to try it out for two weeks using coupon code: DPTRIAL2. Click HERE to subscribe NOW!

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Technical Analysis is a windsock, not a crystal ball. –Carl Swenlin

(c) Copyright 2024 DecisionPoint.com

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.

Helpful DecisionPoint Links:

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking

Bear Market Rules

Good morning and welcome to this week’s Flight Path. Equities saw the “Go” trend continue this week as the indicator painted strong blue bars the entire week. Treasury bond prices saw the “NoGo” trend continue with a week of strong purple bars. U.S. commodities saw the “Go” trend continue this wek and at the end of the week we saw a new strong blue bar. GoNoGo Trend shows that trend in the U.S. dollar continued to be a “Go” with mostly strong blue bars.

$SPY Remains in “Go” Trend with Price at Highs

The GoNoGo chart below shows that the trend is strong for U.S. equities. GoNoGo Trend paints a week of uninterrupted strong blue bars as price remains elevated and close to highs. GoNoGo Oscillator has fallen from over bought levels and is now at a value of 3. This confirms the trend we see in the price panel.

The longer time frame chart tells us that the trend is still well and truly in place as we see another strong blue “Go” bar at new highs. GoNoGo Oscillator is approaching overbought territory and this represents enthusiasm from the market as we see prices climb higher.

The “Go” Trend Survives Another Week

Treasury bond yields emerged out of the “NoGo” last week and now we see that this week we have been able to maintain the new “Go” trend. The indicator paints strong blue bars and GoNoGo Oscillator is in positive territory at a value of 3.

The Dollar Continues to Show Strength

Last week we saw a Go Countertrend Correction Icon (red arrow) telling us that price may struggle to go higher in the short term. As is sometimes the case in strong trends, price blew right past this warning and we saw strong blue “Go” bars and new highs this week. GoNoGo Oscillator has remained elevated this week as it stays in overbought territory.

The “Magnificent 7”, comprised of Apple (AAPL), Microsoft (MSFT), NVIDIA (NVDA), Meta Platforms (META), Amazon.com (AMZN), Alphabet (GOOGL), and Tesla (TSLA) have carried the S&P 500 during this secular bull market – since its breakout in April 2013 above its 2000 and 2007 highs. Here’s a weekly chart of the S&P 500 during this secular bull market, with 7 price panels below, each highlighting the relative strength of one of the Mag 7 stocks:

These Mag 7 stocks have seen their market caps EXPLODE during this bull market and they’ve become a larger and larger representation of the S&P 500 as a result, because the S&P 500 is a market-cap weighted index.

Heading into their next earnings reports, however, I only see 3 of these 7 stocks showing solid relative strength vs. its peers – AAPL, NVDA and META. In my opinion, NVDA is the strongest and is likely to have a very strong run higher into its November 20th quarterly earnings report. Check out its excellent relative strength and rising AD line:

It’s hard to find something not to like about NVDA’s chart. The AD line has continued to climb, even while its price was consolidating/declining. Relative strength has done the same. The overall market must face the worst week of the year historically this upcoming week, but otherwise, the coast is clear for yet another breakout on NVDA.

During my weekly market recap, “Which Mag 7 Stocks Should YOU Own?”, I discuss the charts of all Mag 7 stocks, along with an overview of last week’s stock market action. I showed a few interesting RRG charts to easily visualize strong areas of the market. Be sure to check out the video by clicking on the link above. Also, I’d really appreciate you hitting the “Like” button and the “Subscribe” button, as we build out our YouTube community. Thank you so much!

Relative Strength

I cannot overemphasize the importance of relative strength, especially when it comes to quarterly earnings reports. Wall Street talks to company management teams throughout the quarter and gets a strong sense of which companies are executing their plans flawlessly and which companies aren’t. This shows up in their stock price and how they perform relative to their industry peers. I’d struggle to trade during earnings season without this one very critical piece of technical information.

Intuitive Surgical (ISRG) is an example of a stock showing excellent leadership among its peers. When its quarterly earnings absolutely blew away estimates, I was not surprised at all. The big Wall Street firms have been accumulating ISRG for months and months and clearly showing on the chart that ISRG was the best of breed. Check out ISRG’s relative strength and AD line heading into earnings…..and then its earnings reaction on Friday:

On the heels of beating both revenue and earnings estimates, ISRG jumped to a new all-time high. Owning stocks like ISRG will help you outperform the S&P 500 and will also help you meet your financial goals.

On Monday, I’ll be providing one of the best stocks, in terms of relative strength, that will be reporting in the week ahead. Simply SIGN UP for our FREE EB Digest newsletter (no credit card required) and we’ll send this chart to you first thing Monday morning!

Happy trading!

Tom

The markets closed on a negative note for the third week in a row; over the past five sessions, the Nifty remained largely on a declining trajectory except for the last trading day where it saw some relief rally from the lower levels. Following a strong weekly decline of 1167 points two weeks ago, the Nifty has thereafter traded relatively in a lesser range but has by and large exhibited a weak bias. The trading range this time remained similar to that of the previous week; the Nifty oscillated in 644 points over the past five days. The volatility remained stagnant; the India Vix came off by 1.38% to 13.04 on a weekly basis. While continuing to find short-term pattern support, the headline index closed with a net weekly loss of 110.20 points (-0.44%).

Many important levels have been tested over the past week; a few important levels need to be watched as well. The Nifty tested the 20-week MA which currently stands at 24657. The 100-Day MA is currently at 24507. This makes the 24500-24650 a very important support zone for the index. On the other hand, the derivatives data show a maximum accumulation of Call OI in the 25000-25100 range making these levels an immediate resistance area for the markets. This is likely to keep the markets in a capped range; if the technical rebound extends itself, it is likely to find resistance in the 25000-25100 zone. In the same breadth, markets would get weaker if the 24650-24500 zone is violated on the downside. So long as either of these ranges are not violated, expect the Nifty to oscillate back and forth in a defined range.

A quiet start is expected to the coming week; the levels of 25000 and 25130 are likely to act as resistance points for the markets. The supports come in at 24650 and 24450 levels.

The weekly RSI is 57.70; it stays neutral and does not show any divergence against the price. The weekly MACD is bearish and trades below the signal line.

A pattern analysis of the weekly chart shows that the Nifty is finding support at an extended trend line. This trendline starts from 22124 and subsequently joins higher tops while it extends itself. Besides this, this pattern support on the weekly chart also coincides with the 20-week MA and the 100-day MA making the zone of 24500-24650 an important short-term support zone for the Nifty. If this zone is violated, we might see some incremental weakness creeping into the markets.

The coming week is likely to stay ranged; no trend would emerge so long as the Nifty is between 24500—25000 levels. Only if the higher level is taken out or the lower one gets violated, we will see the trend emerging in the markets again. Until that happens, expect the markets to remain in a range. However, we should also note that as long as the zone of 25000-25100 is not removed, we will remain vulnerable to profit-taking bouts from higher levels. A major sectoral shift is seen in the markets that may cause leadership to change. Banks and financial services along with Energy, Consumption, etc., are likely to show improvement in their relative strength. It is recommended that one must continue to adopt a highly selective approach while keeping overall leveraged exposures at modest levels.

Sector Analysis for the coming week

In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (NIFTY 500 Index), which represents over 95% of the free float market cap of all the stocks listed.

Relative Rotation Graphs (RRG) show Nifty IT, Pharma, Consumption, FMCG, and Services Sector indices are inside the leading quadrant. Barring the Services Sector Index, the rest are showing a slowdown in their relative momentum against the broader markets. However, they may continue to show resilient performance in the coming week.

The MidCap 100 and Nifty Auto Index stay inside the weakening quadrant; they may continue giving up on their relative performance.

The Energy, Commodities, PSE, Realty, Nifty Bank, Infrastructure, Metal, and PSU Bank indices are inside the lagging quadrant. However, except for the Infrastructure and PSE index, all others are showing strong improvement in their relative momentum against the broader market.

The Nifty Financial Services Index has rolled inside the improving quadrant. This may lead to its phase of relative outperformance. The Media Index is also inside the leading quadrant; however, it is seen sharply giving up its relative momentum against the broader Nifty 500 index.

Important Note: RRG™ charts show the relative strength and momentum of a group of stocks. In the above Chart, they show relative performance against NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.  

Milan Vaishnav, CMT, MSTA

Consulting Technical Analyst

www.EquityResearch.asia | www.ChartWizard.ae

The Moving Average Convergence/Divergence (MACD) indicator, created by technical analyst Gerald Appel, is a technical indicator designed to confirm once a trend change has occurred.  Based on exponential moving averages, it is not built to anticipate a price reversal, but rather to identify that one has already occurred.

The lesser known MACD histogram can actually provide a powerful leading indicator as to when a turning point could be just around the corner.  Today we’ll use the weekly chart of IBM to show how by combining these two techniques, we can anticipate potential reversals and then confirm when and how the trend has shifted.

Using the MACD or PPO Indicator to Define the Trend

To start this discussion, let’s be clear on why we’re using the PPO indicator instead of MACD on our example charts.  The MACD indicator is based on the price difference between two exponential moving averages, while the PPO indicator is based on the percent difference between those two averages.  

For a short-term time frame, the indicators are almost identical and either one can be used for effective signals.  For long-term time frames, however, using percentage terms instead of price terms allows for a more consistent comparison especially if the stock or ETF has experienced big price swings.  

On the weekly chart of International Business Machines (IBM), the PPO indicator (bottom panel) starts with the PPO line, which represents the difference between the 12 and 26-week exponential moving averages.  Then we have the red signal line, which is simply a 9-bar moving average of the PPO line.

Note the sell signal in late March 2024, when the PPO line crossed down through the red signal line.  Conversely, the buy signal in mid-July is based on the PPO line crossing back up through the red signal line.  At the present time, the PPO indicator suggests the uptrend is alive and well, with the PPO line sloping higher above the red signal line.

Adding the Histogram Helps to Anticipate the Signals

See how the sell signal in March came after the peak had occurred, and the price was already in a new downtrend?  Also, notice how the buy signal in July appeared well after the actual price low in April?

This is actually by design, as the PPO indicator is considered a lagging indicator.  It’s not designed to tell you a reversal may be coming soon, but rather that a reversal recently happened and is now being confirmed.  But what if we want to anticipate those reversals before they occur?

The PPO histogram, shown behind the PPO indicator in blue, represents the difference between the PPO line and the signal line.  Go back to that March peak, and you may notice that the histogram had started to slope downward starting in February.  Then in May, right as the price was finding a new swing low, the histogram started to slope back upwards.  

So to summarize the components, the histogram reversals raise the “red flag” that a potential price reversal is coming, and then the actual PPO crossover confirms that the trend reversal has actually occurred.  Now we can use the PPO indicator as both a leading and a lagging indicator!

Using the Histogram With Other Indicators

Fast forward to October 2024, and you’ll see that this week the PPO histogram moved slightly lower.  This could represent the early warning of an impending top for IBM.  In this situation, I like to go to a lower time frame, in this case the daily chart, and use trend-following techniques to confirm a breakdown on the shorter time frame.  While the weekly may still be my main indication, a sell signal could come earlier on the daily chart and help me to take action before the pain gets too unbearable!

Here I’m showing the Chandelier Exit system, which is a trailing stop indicator based on Average True Range (ATR).  As long as IBM remains above the Chandelier Exit, the uptrend is most likely still alive and well on the daily chart.  A breakdown of this trailing stop could help me confirm the bearish divergence we’ve noted on the weekly PPO chart.

The technical analysis toolkit consists mainly of leading indicators and lagging indicators.  While I primarily use lagging indicators to follow the trends and confirm trend reversals, I have also found leading indicators such as the PPO histogram to be a vital part of managing risk and identifying opportunities for my portfolio.

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.  

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

In this StockCharts TV video, Mary Ellen reviews what’s driving the markets higher and how you can capitalize. Moves in TSLA, NVDA, and NFLX are highlighted. She also reviews price action greatly impacted by earnings, many driven by analyst upgrades and downgrades.

This video originally premiered October 18, 2024. You can watch it on our dedicated page for Mary Ellen on StockCharts TV.

New videos from Mary Ellen premiere weekly on Fridays. You can view all previously recorded episodes at this link.

If you’re looking for stocks to invest in, be sure to check out the MEM Edge Report! This report gives you detailed information on the top sectors, industries and stocks so you can make informed investment decisions.

Despite a light economic data week, the stock market continued its rally, with the S&P 500 ($SPX) and the Dow Jones Industrial Average ($INDU) closing at record highs. How many times have we heard that? This is the sixth positive week for the three indexes.

Strong earnings from big banks, Taiwan Semiconductor Mfg. (TSM), United Airlines Holdings (UAL), and Netflix, Inc. (NFLX) injected optimistic energy into the stock market.

Tech Stocks Hold Steady

The tech-heavy Nasdaq Composite ($COMPQ) may not have hit all-time highs, but its daily chart is worth a closer look. An ascending triangle formation has reached its apex, indicating indecision among investors. The breadth indicators in the lower panels below the price chart echo this indecision.

CHART 1. NASDAQ COMPOSITE CONVERGING AT TRIANGLE APEX. The Nasdaq Composite seems to be at a point of indecision. This could continue until Tech stocks report quarterly earnings.Chart source: StockCharts.com. For educational purposes.

The Nasdaq Bullish Percent Index (BPI) is trending higher but is registering at 57.76, which is slightly bullish. The percentage of Nasdaq stocks trading above their 200-day moving average is also lukewarm, and the Nasdaq advance-decline line isn’t showing strong bullish participation.

Investors are probably waiting for Tech earnings. Until then, the index will probably stay put unless some unknown market-moving event occurs before then. The indecision in Tech stocks isn’t stopping investors from shifting to other areas of the market.

Mid-Caps Might Flatten

The S&P 400 Mid Cap Index ($MID) broke out of its trading range in September and has been trading above it since then. The index hit an all-time high this week, but has started to show signs of flattening (see last two bars in chart below).

CHART 2. MID-CAP STOCKS BREAK OUT OF RANGE. After hitting an all-time high, the S&P 400 Mid-Cap Index is stalling.Chart source: StockCharts.com. For educational purposes.

The percentage of $MID stocks above their 200-day moving average is 73, which is pretty healthy. The advances still need higher volume to push the index higher. Until that happens, the mid-cap asset class may stall.

Bitcoin Breaks Out, Gold Glitters

Bitcoin has also shown its might this week. The weekly chart shows Bitcoin breaking out of a flag pattern (see below).

CHART 3. BITCOIN BREAKS OUT OF A CONSOLIDATION PATTERN. A breakout plus a possible MACD crossover could send Bitcoin prices higher. Note that the crossover is close to the zero line, an encouraging sign.Chart source: StockCharts.com. For educational purposes.

After hitting the measured move targets following the previous consolidation, $BTCUSD has been in an extended consolidation pattern and has finally broken out. A bullish crossover in the moving average convergence/divergence (MACD) could occur. The crossover is close to the zero line, a criterion I look for. Look at what happened to the price of Bitcoin the last time a crossover took place at the zero line! Bitcoin could move higher by about 42.5%.

Speaking of all-time highs, gold prices are on fire. The SPDR Gold Shares ETF (GLD) has been in an uptrend since early March, and central bank interest rate cuts have propelled gold prices higher (see chart below).

CHART 4. GOLD PRICES ON A TEAR THIS YEAR. GLD has been following a typical uptrend, going through consolidations, breaking out of them, and continuing its ride higher.Chart source: StockCharts.com. For educational purposes.

GLD could potentially rise above $250, but it’s difficult to set an entry point unless there’s a pullback. If you are considering going long now, apply stringent stop losses.

The Atlanta Fed GDPNow is estimating a 3.4% growth in Q3 2024. This has led investors to think the Fed will not cut interest rates in its November meeting. However, the CME FedWatch Tool shows a 92.9% probability of a 25 basis point cut. So, if there’s a rate cut in November, GLD could rise higher. This can change though, considering we’re less than three weeks away from the meeting, which happens to be right after the U.S. presidential election.

Looking Forward

Next week is thin on economic data, but earnings season continues. It’s not a strong week for Tech earnings, so the Nasdaq could continue its indecisive price action. As for the rest of the market, there could be more of the same. As always, anything could happen over the weekend that could send things awry.

End-of-Week Wrap-Up

S&P 500 closed up 0.85% for the week, at 5864.67, Dow Jones Industrial Average up 0.96% for the week at 43,275.91; Nasdaq Composite closed up 0.80% for the week at 18,489.55$VIX down 11.88% for the week, closing at 18.03Best performing sector for the week: UtilitiesWorst performing sector for the week: EnergyTop 5 Large Cap SCTR stocks: Insmed Inc. (INSM); Carvana (CVNA); Ubiquiti, Inc. (UI); Applovin Corp (APP); Cava Group, Inc. (CAVA)

On the Radar Next Week

Fed speechesSeptember Existing Home SalesSeptember New Home SalesEarnings from Tesla (TSLA), General Motors (GM), Verizon Communications (VZ), Coca Cola (KO), among others

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

In this week’s RRG video, I shared my concerns about the current market conditions. The sector rotation model and current sector rotation, as we see it on the Relative Rotation Graph for US sectors, are sending us conflicting signals. This combination continues to make me cautious about fully buying into the rally with new positions.

Being Fully invested is too risky at the moment (for me).

My current approach is that the risk of being fully invested in the market right now, or even buying into it, is too high for my comfort. Instead, I suggest we focus on identifying individual stocks or industries that present profit opportunities for long positions.

Dow Jones Industrials: Finding the Right Stocks

I haven’t blogged about individual stocks for a while, especially not about the members of the Dow Jones Industrials. So, I thought it would be beneficial to examine the constituents of the Dow Jones Industrials Index to find suitable candidates for long positions.

Outliers on the RRG

When you look at the RRG holding the Dow Jones Industrial Stocks, two real outliers catch the eye. The first is Intel, which is in the lagging quadrant and experiencing a significant hiccup in relative momentum. The second outlier is 3M, located in the weakening quadrant and rapidly losing relative momentum. If removed from the equation, these two stocks allow us to see a more balanced distribution of stocks across the various quadrants.

Positive RRG Headings

My next step is to toggle over all the individual stocks and highlight those with a positive RRG heading between 0 and 90 degrees. This indicates that a stock is gaining relative strength against the Dow Jones Industrials and is supported by positive momentum.

With this filter, we see two stocks in the lagging quadrant on a positive heading: Amazon and Honeywell. Four stocks are inside the improving quadrant, and they seem to continue improving: DIS, NKE, CRM, and V.

Concentrating on the Leading Quadrant

The leading quadrant has a higher concentration of stocks on a positive heading, and that’s where I want to focus our attention.

After reviewing the individual charts of these stocks, I’ve identified a few worth a closer look and might be considered for adding to a portfolio.

The Strong Performers: TRV, WMT, and AXP

Travelers (TRV), Walmart (WMT), and American Express (AXP) are showing very strong charts in terms of price and relative strength. However, they’ve had such a long run that I wouldn’t recommend chasing them higher. The same goes for American Express (AXP). If you already hold these stocks, they are a great “hold,” but I wouldn’t initiate new positions.

The Top Three Picks

Now, let’s talk about the three stocks that stand out as potential additions to our portfolio.

Caterpillar (CAT)

Caterpillar’s price has just broken above the previous high at $380 and is consolidating. As long as it stays above $380, it has a good chance of continuing its uptrend. The RRG lines have turned up and are both above 100, indicating a positive RRG heading.

Cisco (CSCO)

Cisco bottomed out around $44 and has climbed to its previous high of around $56. It’s now breaking above that resistance, which is a positive sign.

The next target is the late December 2021 peak, just below $60. The relative strength is picking up again, confirmed by both RRG lines pushing above the 100 level.

Once that barrier is taken out, a lot of upside potential for CSCO will be unlocked.

Home Depot (HD)

Home Depot has broken above resistance around $390, formed by two peaks in late 2021 and March 2024. The stock confirms a new uptrend with the RRG lines pushing above 100.

We could see significant upside potential when the raw RS line surpasses its previous high from March 2024.

By measuring the height of the range from $260 to $390, we can project a rough price target of $520 for Home Depot to be reached within the next two years, as long as the support around $390 holds.

Remember, it’s not about chasing the market; it’s about making informed decisions based on solid analysis.

#StayAlert and have a great weekend, –Julius