Even after moving sharply higher in February, these four leading Dow stocks still have significant upside, but are close enough to monthly support to limit the risk on new positions.

Every weekend and at the end of each month, I run a series of scans that rank a group of stocks relative to their upper and lower Starc bands.

Starc band analysis is one way I determine whether a stock is in a high- or low-risk buy or sell zone. When a stock is close to its monthly Starc- band (oversold), then it is a low-risk buy and a high-risk sell.


Click to Enlarge

The table above lists the ten Dow stocks that are closest to their monthly Starc+ band. Also noted on the table are the entry levels of the five stocks in the table that I have previously recommended, along with the suggested stop levels. For other positions, please see the Current Portfolio chart at the end of the column.

Home Depot (HD) closed the month at $47.57, which is just 1% below the monthly Starc+ band at $48.07. It has been near the top of the list of most overbought Dow stocks for the last two months. It is a good example of how a stock can be near the top of the list but still perform well.

At the end of December, HD was 5.1% below the monthly Starc + band, and was just 3% below it at the end of January. Still, HD is up 12.5% so far this year, but has not yet closed above its monthly Starc+ band, which would raise a warning flag.

This analysis can often also alert me to those stocks whose relative performance and volume analysis suggests they may be close to breaking above major resistance levels. Two of these four Dow stocks have had relatively narrow ranges over the past two months, which allows one to use stops under the monthly lows, making the risk on new positions well defined.


Click to Enlarge

Chart Analysis: Walt Disney (DIS) was up 7.7% in February, and has rallied steadily after dropping below the monthly Starc- band between August and October. DIS had a high in 2011 of $44.34.

  • There is major resistance going back to 2000 (line a) in the $45 area. A breakout above this level will have long-term significance
  • The initial upside targets are in the $50 area
  • The relative performance, or RS analysis, moved above its WMA at the end of January, and shows a long-term uptrend, line b
  • The on-balance-volume (OBV) was very strong in 2011, and has made higher highs since 2004
  • The OBV is now above its WMA and the weekly OBV (not shown) is also positive
  • Initial support now at $40.80-$41.80, with stronger levels at $39-$39.50

Coca-Cola (KO) has traded in a about a $5 range for the past three months. It has been testing the breakout level, line d, that corresponds to the January 2008 high. It currently yields 2.4%.

  • The next resistance is in the $75-$77 area, with the all time high from 1998 at $88.94
  • The RS line has dropped back below its WMA, and is now testing its long-term uptrend, line f
  • The monthly OBV broke its downtrend, line g, in 2010. It is acting much stronger than prices
  • There is initial support now at $68.30-$69, with more important levels in the $66.50-$67 area

NEXT: More Dow Names in Tradable Ranges


Click to Enlarge

Procter & Gamble (PG) has also been trading in a narrow range of about $7 for the past five months. It closed February above the January highs, and right at resistance at line a. It currently yields 3.1%.

  • Next monthly resistance stands at $71.50-$73, with the 2007 highs to follow at $75.18
  • The RS line has turned up from support, line c, and a move above its WMA next month would be positive
  • The RS line has long-term resistance at line b
  • The monthly OBV has moved above its WMA, and shows a bullish formation (see circle)
  • The weekly chart could form a doji this week, which would be a sign of indecision and allow for a short-term pullback
  • There is support initially at $65.40-$66 with stronger levels in the $64.50 area

Exxon Mobil (XOM) has just rallied back to the May 2011 highs at $88. The Fibonacci retracement target is in the $95 area which corresponds to the 2008 high. It currently yields 2.2%.

  • The RS line has dropped back to its rising WMA and a move above resistance at line e, would be a very positive sign
  • The OBV tested support, line f, in September and has just closed above its WMA. Higher volume in March along with higher prices would turn the OBV very positive
  • The weekly OBV (not shown) is still below its WMA
  • There is initial support at $84-$85.50 with stronger in the $80-$81.50 area

What it Means: Though the overall stock market is overdue for a correction, these four stocks have monthly technical patterns that suggest they have a good chance of being the new market leaders in the coming months.

How to Profit: For Walt Disney (DIS), go 50% long at $39.64 and 50% long at $38.40, with a stop at $36.82 (risk of approx. 5.6%).

For Coca-Cola (KO), go 50% long at $68.90 and 50% long at $67.84, with a stop at $64.44 (risk of approx. 5.7%).

For Procter & Gamble (PG), go 50% long at $66.06 and 50% long at $65.44, with a stop at $63.20 (risk of approx. 3.9%).

For Exxon Mobil (XOM), go 50% long at $85.90 and 50% long at $84.68, with a stop at $81.62 (risk of approx. 4.3%).

NEXT: The Latest on the Charts in Play Portfolio


Click to Enlarge

Related Articles
  1. Stock Analysis

    The Biggest Oil Producers in Asia

    Learn which Asian countries deliver the most crude oil to market, and discover what companies are the biggest producers in each country.
  2. Stock Analysis

    The 5 Biggest Russian Oil Companies

    Discover the top Russian oil companies by production volume and find out more about their domestic and international business operations.
  3. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  4. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  5. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  6. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  7. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  8. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  9. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  10. Insurance

    The 5 Biggest Russian Insurance Companies

    Discover the five companies that dominate the Russian insurance market, and learn a little more about their business operations and ownership.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!