May 10, 2013 Leave a comment
Despite a tour-de-force rally, the North American markets continue to refuse to take a rest. In our recent Market Comments we have presented technical and cyclical evidence that such a corrective period could begin in May, partially validating the axiom “Sell in May and go away.”
The recent erratic behaviour of many Dow Jones components adds another bit of evidence reaffirming this view.
Since the 2009 lows, the majority of Dow stocks have been on the rise within well-mannered up-trends. The price action took place above the rising 200-day moving average and each time stocks ran away from their 200dMAs, a pullback quickly followed.
However, the advance of the last few weeks has catapulted many Dow components sharply higher, well above their 200-day moving averages (blue lines – see charts on the next page) in a nearly vertical fashion.
A rise of this magnitude is nothing else than a manifestation of growing demand. However, past examples show that such a rush to get in usually occurs toward the end of a major move or before a major corrective period.
It is strongly recommended, therefore, that investors who benefitted from the recent rise should put in place adequate (tight) stop-loss orders to protect their gains.
Below, please find the charts of stocks in the Dow Jones industrial index that could be most prone to profit taking (of course, a weakness in those names would greatly affect the index itself).
Weekly charts with the 40-week (200-day) moving average
On the other end, there is an entire group of stocks that haven’t had a chance to participate in this bull market yet and they are now coming alive. Many of the stocks have large base patterns, which could support significant advances. For more information please visit www.na-marketletter.com