No matter how well or how poorly a stock index is performing, there are always laggards and leaders. Traditional advice would encourage investors to concentrate on the winners and avoid the losers (of course, the losers could also be shorted). Contrarians, who think the Dow is going to become more bullish, might want to follow the worst performing stocks (the idea behind the “Dogs of the Dow” investing strategy). A third approach would be to concentrate on the stocks in the index with charts that are transitioning from a bearish to bullish pattern. This article discusses the stocks in the Dow with the weakest charts at the end of the first quarter in 2016.
To determine bearishness, we will use three moving averages, the 10-week, 40-week, and the 65-week (same as the 50-day, 200-day and 325-day). In the most bearish pattern, all three would be heading down with the 65-week (red line) above the 40-week (blue line), which in turn would be above the 10-week (yellow line). The sharper the decline of the two longer-term averages the more bearish the chart and the greater the distance of the 10-week below the 40-week, the more bearish the chart. A stock’s price relative to the moving averages is important. Below and around the 10-week is the most bearish. Price rising above the 40-week indicates a possible improvement, however. Price of a stock rising to the 65-week is even better because moving above that line indicates a bullish transition might take place (it will be necessary for price to mostly stay above that line for that to happen).
Based on our criteria, the Dow stocks with the most bearish charts are American Express (AXP), Goldman Sachs (GS), and Pfizer (PFE). The moving averages for American Express are all moving down at sharp angles and the 10-week is well below the 40-week. The stock has traded mostly below the 10-week for many months, until it recently moved above it. The 40-week and 65-week moving averages for Goldman Sachs and Pfizer are closer together, which is better, but the 10-week is still well below them. Their stock prices are clinging to the 10-week.
