Monday, September 30, 2013

The Dow's weakest link

Earlier I mentioned that industrial stocks were among those hardest hit by recent selling pressure.  Some of the individual components of the Dow 30 index are among those that have the weakest looking charts.  

One such example is Procter & Gamble Co. (PG), which we discussed in the Aug. 30 report.  On that day PG experienced a mini “flash crash” in which a flurry of about 175 trades, executed on the NYSE within a one-second period, caused the decline, with about 244,000 shares changing hands on the Big Board.  Here’s what the daily chart for PG looks like as of Friday, Sept. 27.

With PG in such a vulnerable position below its 15-day moving average and barely above its 3-month low, a move decisively below the 77.00 level from here could catalyze another sell-off in this Dow component and lead to a re-test of the Aug. 30 intraday low of 73.61.  This would in turn weigh heavily against the Dow and could produce the October weakness alluded to as we approach the next interim cycle bottom. [Excerpted from the Sept. 27 issue of Momentum Strategies Report]