Trend Check with Tushar Chande

Which are the Strongest (and Weakest) Dow 30 Stocks?

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With the Dow closing above 25,000 for the first time ever, I take look at the components of the index and show which ones are strongest (and the ones driving the index higher).  I also look at NVDA and the $SOX index to show that the sell-off that caused the rotation out of tech and into financials has been mostly reversed within the past few days.  The broad market continues to be very strong, and I use the NY Composite chart to illustrate this point.  Lastly, I look at the key index and sector ETFs and show how they compare to the SPY ETF.

Chart 1: The mythical "average" Dow 30 Stock is at the center of this chart.  The strongest stocks are in the upper right-hand quadrant, and the weakest stocks are in the lower left-hand quadrant.

 


 

Analyzing the Dow 30 Components

I use the daily SCTR and Chande Trend Meter (CTM) to simultaneously analyze the relative and absolute trend strength.  Since the index has no internal SCTR value, I simply averaged the SCTR and CTM values, to create the "average" stock, and deducted these values from the respective values for each stock.  Thus, I could rank their performance as better or worse than average, and when the two are combined, Chart 1 is the result.  Stocks to the right of the Y-axis are above average on a relative basis.  Stocks above the X-axis are above average on an absolute trend strength basis.  Since the average values of SCTR is not 50.0 for all the stocks in the index, the X-axis is skewed to above 50.0 on the SCTR scale.  Chart 1 allows us to visualize the strongest and weakest stocks.  Stocks in the upper left-hand quadrant have improving chart action, but relative strength has some ways to go.  Similarly, stocks in the lower right-hand quadrant have worsening chart action, but the relative strength has not dropped below average.  Trend-followers should look to the upper right, and value players may prefer to look to the lower left.

 

Semiconductor Stocks Recover from November Sell-off

We all remember the harsh sell-off in semiconductor and high-flying technology stocks that led to a rotation into Financials as outlines of the tax bill became clearer in mid-November.  In early December, I discussed the $SOX index, and it's recovery since then has largely followed my expectations (see Chart 3).  In the 2-hour chart, the rebound in the $SOX index hit resistance in the red rectangle, from earlier support around 1280.  The decisive breakout this week over resistance completes the rebound, with prior highs in sight.  Some stocks, such as NVDA (see Chart 3) are back to their November highs, but not all stocks hit in that rotation have fully recovered.

 

Chart 2: I used the early December version of this chart to mark resistance from prior support.  The rebound met resistance around 1280 as expected, and this week's decisive climb through 1280 and the CTM above 80 implies that new highs are within sight.

 

Chart 3: The negative correlation to the XLF ETF shows the rotation out of tech into Financials as NVDA was hit hard in mid-November. This week NVDA has rallied to the November highs, but a close above those highs is needed to confirm the recovery.

 

Broad Market is Strong

The NYSE composite has been trending strongly since tax revamp outlines began to emerge in Congress, and the rally continued this week. As you can see in Chart 4, the NYSE Composite index, the broadest stock market index in the US, has moved up nicely on the 2-hour chart since mid-November.  The past few days have seen continued strength, which has kept the 200-bar stochRSi above 0.80.  The strength in this broad index has bullish implications for small stocks in particular.

 

Chart 4: The broadest stock market index, the NYSE composite, has moved up steadily since mid-November, and has been strong during this week as well.  The 200-bar stochastic RSI is pinned above 0.80, confirming the market strength this week.  Overall, this is bullish for the US indexes in general, and for small stocks in particular.

 

Relative Sector Setup

I use the SPY ETF as reference to check on the major indexes and key sector ETFs.  The SPY index is at (0,0) on this chart.  ETFs with stronger relative performance are to the right of the Y-axis.  ETFs with stronger absolute trend strength are above the X-axis.  The rally in tech stocks I discussed in the context of NVDA above has pushed the QQQ to the right of the Y-axis from late last year.  Bonds and utilities and the dollar are the weakest ETFs.

Chart 5: I use the daily SCTR and daily CTM values to jointly compare the relative performance and absolute trend strength simultaneously using the SPY ETF as reference (it is at 0,0).  The strongest performers are in the upper right-hand quadrant as shown in Figure 1 above.

 

Looking Ahead

The market is trending, and seems to have picked up where it left off last year.  As usual, head-line risk remains, but market internals are as bullish as ever.

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Tushar Chande
About the author: , PhD, MBA, is the inventor behind an impressive collection of technical indicators, including the Aroon and Stochastic RSI. He has written several books, holds both a PhD in Engineering and an MBA in Finance, and has over two decades of experience trading the financial markets. Follow Tushar in this blog as he highlights his new "Trend Meter" indicator and shares his analysis of current market conditions. Learn More
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