The Dow Jones Industrial Average lifted into new-high territory again as the bulls continued their reign in the stock market today. Even the so-called current “dogs of the Dow,” such as Walgreens Boot Alliance (WBA) and Walt Disney (DIS), flexed some muscle.
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Walgreens, up 2.7% for the week, still trades 35% below a 52-week high and 73% off an all-time peak of 97.30. The pharmacy chain currently shows a 7.4% annualized dividend yield. However, WBA shares also face a test of resistance at its falling 200-day moving average.
Is it time, as some market pundits suggest, to buy the dogs of the Dow? Of course, it depends on an investor’s objectives and time horizon.
For those who wish to buy top-quality growth stocks, it’s best to follow the IBD system for selecting companies and time purchases once they stage a high-volume breakout from a sound base.
Stock Market Today
The Dow Jones’ 0.7% gain to 37,557 matched the rise by the Nasdaq composite. The Nasdaq closed above 15,000 for the first time since January 2022. The S&P 500 gained almost 0.6%, lagging a 1.3% jump by the S&P Mid Cap 400 (MDY) exchange traded fund.
MDY, which broke out of a cup without handle at 500.78, has advanced 16.9% since IBD marked a new confirmed uptrend with the follow-through day that occurred on Nov. 1.
Top performing industry groups included wood products, coal, solar, metal product distribution, drugstore chains, agricultural chemicals and RV makers. All of these industry groups rallied more than 3%. See the complete performance of all IBD 197 industry groups at IBD Data Tables.
Meanwhile, the Russell 2000 drove 1.9% higher, expanding its gain for the fourth quarter to more than 13%.
Notice on a monthly chart how the Russell had a tough time ripping past the 2000 level in recent months.
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Beyond Dow Jones: Volume Metrics
Volume ran mildly lower vs. the same time Monday on both main exchanges, according to preliminary data.
Keep in mind that volume fell drastically on Monday vs. Friday’s “quadruple witching” session of expiring options and futures on both individual stocks and equity indexes.
Also, the MarketSmith homepage shows a much bigger number of stocks rising in heavy volume (245 at around 2:25 p.m. ET) vs. those falling in above-average turnover (just 30). These statistics imply that institutional investors are still accumulating stock.
Earlier on Tuesday, November housing starts sharply beat expectations, coming in at 1.56 million homes at an annualized rate. That beat the Econoday consensus view of 1.36 million and also bested the highest single economist forecast of 1.40 million. The October figure got a slight downward revision to 1.359 million vs. 1.372 million.
Stay on the lookout for Friday’s report on inflation, namely the personal consumption expenditures (PCE) index for November. Economists see a 0.1% drop month on month in the PCE index and a 2.9% gain year over year. Core PCE is seen rising 0.2% vs. October, matching the October increase, and up 3.4% year over year, down from a 3.5% gain in the prior month.
Treasury Bonds Rally Again
The yield on the benchmark U.S. Treasury 10-year bond slipped 3 basis points to 3.92%. That yield, which falls as bond prices rise, has now fallen nearly 118 basis points from the 10-year note’s peak at 4.99% in October.
Craig Brothers, senior portfolio manager and co-head of fixed income at Bel Air Investment Advisors, believes that further rallies by government bonds could be limited by the mountainous supply of debt that needs to get rolled into new bonds.
“In 2023, 31% of Treasury debt must be rolled into new debt,” Brothers told IBD via email. “Every 1% increase in interest rates (2.90% is the current average) adds $2.5 trillion in spending over 10 years.”
Brothers added that foreign central banks are buying “a smaller percentage of the new Treasury auctions,” and added that China has reduced holdings of U.S. Treasury bonds by $500 billion over the past five years.
The iShares 20+ Year Treasury Bond (TLT) ETF, up 0.5%, recently rebounded back above its 200-day moving average, which appears to be flattening out. TLT has rallied 19.8% from its October low of 82.42.
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Dow Jones Today: Dog No. 1
Going back to Walgreens, watch for a potential sell-off as the stock gets near 27 to 33. Previous buyers at those price levels have been nursing paper losses; they may create overhead supply.
Perhaps institutional investors will get more excited and purchase shares if 1) it becomes an acquisition candidate; or 2) the company gets its growth mojo back.
Wall Street sees profit swinging from a 23% drop in fiscal 2024 (ending in August) to $3.07 a share to a 10% rise in fiscal 2025 to $3.36. Walgreens has grown sales 3%, 9% and 9% over the past three quarters following year-over-year declines in the prior three quarters.
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Another Dog?
Meanwhile, Disney may be setting a first-stage base that has the look of a saucer with handle.
Disney, which would benefit from continued growth in its travel and entertainment offerings, has set up a 96.51 buy point. The 56 Relative Strength Rating is relatively weak, below the median RS score of 62 within the 30-stock Dow Jones.
The company has invested heavily in its video streaming service Disney Plus, and is going all in with the development of daily sports wagering via ESPN Bet. (Please see this IBD Weekly front-page article on the latest developments in the streaming industry.)
Diversified industrial giant 3M (MMM) (down 11% year to date and off 49% from its May 2021 multiyear peak) and Chevron (CVX) (below its 200-day line and 20% beneath its all-time peak of 189.68) perhaps also qualify as dogs within the Dow Jones industrials.
3M is forming a new base with a standard entry at 113.14. An early buy point has emerged at 108.80. The dividend payer has an annualized yield of 5.7%; Chevron’s yield is estimated at 4%. Both companies have weak sales and profit performance.
Please follow Chung on Twitter: @saitochung and @IBD_DChung
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Source: investors.com
