The Dow Industrials were able to surpass the 23,000 level at the start of the second week of earnings season and the headlines around the country are touting the new highs. The strong earnings from Dow laggard International Business Machines (IBM) are likely to push the Dow even higher early Wednesday.
A few weeks ago (Don’t Make These Two Investing Mistakes Now) I pointed out that General Electric (GE) and International Business Machines (IBM) were two of the weakest Dow stocks. Of the two only IBM had relative performance analysis that could be bottoming and a Friday close above the “new quarterly pivot at $146.74” would be a good sign. Last Friday it closed at $147.10.
Market watchers are likely paying more attention to some of the stocks that have been the prime movers in the Dow’s recent 1000 point gain. These stocks include Boeing (BA), Caterpillar (CAT), Home Depot (HD) and Goldman Sachs (GS) which reported earnings before the open on Tuesday.
Goldman Sachs (GS) beat on earnings and initially traded higher but closed lower on the day. The stock had a high of $244.89 Tuesday which was just below the monthly pivot resistance (red line). It closed at $236.09 which was 4.4% below its all-time high.
The daily chart shows that it generated a daily doji sell signal the day after the high as it closed at $242.80. The rebound from last week’s low is consistent with a top formation as the relative performance just rebounded to the flat WMA on Monday.
The on-balance-volume (OBV) shows a similar formation as it dropped below its WMA a week ago and it now in a clear downtrend. It has also broken below the support from the correction lows. It would take a strong rebound over several days before the OBV could turn positive. There is monthly pivot support at $222.02. Any rebound should be watched closely as new highs may not be confirmed by the technical studies.
Boeing (BA) is the Dow leading stock that now looks the most vulnerable as Home Depot (HD) has already dropped back to support and they do not report until November. Boeing (BA) reports before the open on October 25th. The stock made a high last Friday at $263.79 which was just below the monthly pivot resistance at $264.24.
The pullback from the highs has taken BA back to the 20 day EMA at $256.22 with more important support now at $251. There is now monthly pivot support at $239.23.
The relative performance did not make a new high last week with prices, line a, but needs to drop further in order to indicate that a top is in place. There is long term RS support at line b. The daily OBV has dropped below its WMA but is still well above the support at line c.
The weekly studies are still positive on Boeing (BA) but during earnings season one has to pay more attention to the daily studies in order to decide whether or not to sell before earnings.
As I Tweeted earlier Wenesday I recommended that Viper Hot Stock traders sell their NFLX longs on Monday at $202.34 or on the close as they were reporting after the close. It's weekly studies were still positive but the risk going into earnings was too high.
The action in NFLX is a good example of the post earnings volatility as it traded above $210 right after the report Monday as it was up sharply in reaction to the report but then closed Tuesday at $199.48.
If Boeing rallies back towards the recent highs I would be looking to sell or hedge long positions ahead of the earnings report. Caterpillar (CAT) reports after the close on October 25th and Home Depot (HD) reports on November 21st.
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