Is the Dow oversold? Not according to this indicator
Today’s
PowerRatings
strategy focuses on the Dow Jones Industrial Average. TradingMarkets publishes a
daily list of all 30 components of the Dow and their PowerRatings:
Dow 30 PowerRatings
The Dow hit an intraday high of 11,670.19 on 05/10/06, just 80.10 points shy of
a new all-time high. Since then, the Dow has declined in 6 out of the last 8
days to record a drop of more than 600 points (to yesterday’s intraday low of
11,040.07). A number of technical indicators are suggesting the Dow is oversold,
but what are PowerRatings telling us?
The current list shows 27 out of 30 stocks have PowerRatings between 4 and 6,
while the remaining 3 all have PowerRatings of 7. This suggests the Dow isn’t
very oversold at all — it’s neutral.
Considering the sharp decline since 05/10/06 (see chart) this is a little
surprising. One would normally expect to see at quite a few stocks in oversold
territory (high PowerRatings). This data suggests that the recent decline in the
Dow has come on the back of widespread distribution across the board.
However, when looking at the Dow, it’s important to remember that it differs
from most other indices because it is price-weighted. That means the highest
priced stocks have the most influence in the index. Using yesterday’s closing
prices the ten most heavily weighted stocks in the index are:
| Symbol | PowerRating | Symbol | PowerRating |
( BA | Quote | Chart | News | PowerRating) |
5 | ( UTX | Quote | Chart | News | PowerRating) |
6 |
( MMM | Quote | Chart | News | PowerRating) |
6 | ( AIG | Quote | Chart | News | PowerRating) |
5 |
( IBM | Quote | Chart | News | PowerRating) |
5 | ( XOM | Quote | Chart | News | PowerRating) |
6 |
( CAT | Quote | Chart | News | PowerRating) |
6 | ( JNJ | Quote | Chart | News | PowerRating) |
4 |
( MO | Quote | Chart | News | PowerRating) |
4 | ( PG | Quote | Chart | News | PowerRating) |
4 |
The next thing to look for are signs of strength
or weakness in these ten stocks. As the table above shows, there is nothing to
suggest the Dow’s heavyweights are exerting pressure in either direction.
With only 3 potential buy candidates it doesn’t look like now is a good time to
be initiating positions in the Dow, or most of its 30 stocks. But keep
monitoring the
Dow 30 PowerRatings list for any changes.
Click here
to take a free trial of
You can also
attend a free
class on how to use
PowerRatings
presented by Steve Primo, our Director of Education.
Ashton Dorkins
Editor-in-Chief
Want a free month of
PowerRatings?
Send us your
PowerRatings
strategy and receive one free month of this exciting trading tool. If you are
already a monthly or annual
PowerRatings
subscriber, you will receive an additional three months if we publish your
strategy.