McDonald's, Verizon And 3 Others That May Drag Down The Dow

Disclosure: I hold no positions in Johnson & Johnson, Coca Cola, McDonald's, Pfizer or Verizon.

The Dow Jones Industrial Average set an all-time intraday high of 18,668.44 on Aug. 15. Since then, the average has been drifting lower thanks to five stocks that have fallen below their 50-day simple moving averages. The culprits are Johnson & Johnson, Coca Cola, McDonald’s, Pfizer and Verizon, which is one of the eight “Dog of the Dow” for 2016.

Despite this drag, the Dow still has a positive but overbought weekly chart with the average above its five-week modified moving average of 18,342.29 and well above its 200-week simple moving average of 16,463.07. The 12x3x3 weekly slow stochastic reading rose to 90.63 this week, up from 88.62 on August 5, moving further above the overbought threshold of 80.00.

My proprietary analytics show that the Dow is above my quarterly pivot of 18,177, which indicates upside potential to 20,485 by the end of the year. If there’s a melt-up this week, the Dow could top out at 19,454. A weekly close below 18,177 is a warning that the year’s high has been set. If this happens quickly in August, the downside for the month is to 17,491. Some say that a crash is possible, and the downside in this scenario is to 14,592 by the end of 2016.

Here’s the 2016 scorecard for last week’s five Dow draggers.

Must Read: 10 Stocks To Buy For The Second Half Of 2016

Here are the weekly charts and how to trade the stocks.

Johnson & Johnson (JNJ) closed at $119.92 on Friday, up 16.7% year-to-date and up 27.2% from its January 21 low of $94.28. J&J set its all-time intraday high of $126.07 on July 20 and the stock is 4.9% below this level. The stock moved below its 50-day simple moving average of $121.52 on Aug. 16.

Johnson & Johnson weekly chart will shift too negative if this week’s close is below its five-week modified moving average of $119.92. This would indicate risk to its 200-week simple moving average, now rising at $96.91. The stock has a 12x3x3 weekly slow stochastic reading of 84.78 versus 90.00 on August 12, 5, and will be negative if this week’s level is below the overbought threshold of 80.00.

Investors looking to buy J&J should do so on weakness to $107.84, which is my quarterly value level. Investors looking to reduce positions should do so on sell strength to $124.78, which is my monthly risky level for August.

Coca Cola (KO) closed at $43.92 last week, up 2.2% year-to-date. The stock is 7.8% above its January 21 low of $40.75. Coke has been below its 50-day simple moving average of $44.65 since July 26 and ended last week below its 200-day simple moving average of $44,08.

The weekly chart for Coca Cola is negative with the stock below its five-week modified moving average of $44.40 and above its 200-week simple moving average of $41.06. The 12x3x3 weekly slow stochastic reading ended Friday at 38.10, down from 44.95 on August 12.

Investors looking to buy Coke should do so on weakness to my annual value level of $41.47. Investors looking to reduce positions should sell strength to my annual risky level of $45.30.

McDonald’s (MCD) closed at $115.01 last week, down 2.6% year-to-date. The stock is just 2% above its February 8 low of $112.71. McDonald's has been below its 50-day simple moving average since July 26 and below its 200-day simple moving average since July 28 with these averages now at $120.87 and $120.20, respectively. McDonald’s could begin this week under a “death cross” where the 50-day falls below the 200-day indicating that lower prices lie ahead.

The weekly chart for McDonald’s is negative with the stock below its five-week modified moving average of $120.05 and above its 200-week simple moving average of $101.49. The 12x3x3 weekly slow stochastic reading ended Friday at 26.97, down from 32.10 on August 12.

Investors looking to buy McDonald’s should do so on weakness to $113.49, which is my quarterly value level. Investors looking to reduce positions should sell strength to $122.63, which is my annual risky level.

Pfizer (PFE) closed at $34.98 on Friday, up 8.4% year-to-date. The stock is 23.8% above its February 8 low of $28.25. Pfizer has been below its 50-day simple moving average since August 3 with that average ending last week at $35.57.

The weekly chart for Pfizer is negative with the stock below its five-week modified moving average of $35.39 and above its 200-week simple moving average of $30.98. The 12x3x3 weekly slow stochastic reading ended Friday at 67.64,  down from 79.38 on August 12.

Investors looking to buy Pfizer should do so on weakness to my annual value level of $27.60. Investors looking to reduce positions should sell strength to my quarterly and semiannual risky levels of $35.38 and $39.40, respectively.

Verizon (VZ) closed at $52.45 last week, up 13.5% year-to-date. The stock is 19.8% above its January 20 low of $43.79. Verizon has been below its 50-day simple moving average since August 4 with that average ending last week at $54.55.

The weekly chart for Verizon is negative with the stock below its five-week modified moving average of $53.93 and above its 200-week simple moving average of $48.55. The 12x3x3 weekly slow stochastic reading ended last week at 67.34 down from 75.92 on August 12.

Investors looking to buy Verizon should buy weakness to $50.51, which is my quarterly value level. Investors looking to reduce holdings should sell strength to $54.00, which is my semiannual risky level.

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