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Dow Jones Forecast: 8 Stocks to Buy, 8 to Avoid and 5 to Put In Your Radar

Dow Jones
Dow Jones

The Dow Jones is down by more than 9% this year. It has lagged the S&P 500, which has dropped by more than 5% and the Nasdaq 100 index that has gained by more than 15%. However, the index has has gained by almost 20% in the past three months as investors start to price-in the recovery of the American economy. In this report, I will look at the 5 best stocks to buy in the Dow Jones in the next half of the year.

Dow Jones Constituents YTD performance

Most companies in the Dow Jones have been in the red this year. Only six companies in the index have gained. The best-performer has been Microsoft, whose shares have gained by 29% this year. It was followed by Apple, Home Depot, Visa, Walmart, and UnitedHealth Group. The latter three companies have gained by less than 3% this year.

On the other hand, Boeing is the worst-performer in the index. It has dropped by more than 43% mostly because of the coronavirus and its impacts on aviation. It was followed by ExxonMobil, JP Morgan, Raytheon, Walgreens, and Chevron Corp. These shares have dropped by more than 26% YTD. However, some of the shares have made some progress in the past three months. For example, Boeing and Exxon stock have gained by more than 20% in this time.

Best Dow Jones stocks to buy

A good way to narrow down the best Dow Jones stocks to buy is to look at the industries and exclude those that we don’t believe are good buys. For example, with the number of coronavirus cases, we believe that the price of crude oil will remain under pressure even with the recent gains. As such, we would not recommend buying energy companies like ExxonMobil and Chevron. Also, with airlines going through challenges, I would avoid Boeing.

Second, we believe that the Fed may move to implement negative rates, especially in the fourth quarter. That is because of the deteriorating economic situation in the US. Therefore, it would not be ideal to buy banks like Goldman Sachs, American Express, and JP Morgan. Third, this being a campaign year, I don’t expect that an infrastructure bill will be passed. This excludes companies like Caterpillar and Raytheon.

On the other hand, we believe that companies will continue to invest in cloud technology. This makes Microsoft share price a good buy in the Dow Jones. Another company that could benefit with this trend is International Business Machines (IBM). Further, we expect that retail spending to remain robust, which makes companies like Walmart, Visa, Home Depot, Procter & Gamble, Coca Cola, and Nike. Other Dow Jones to keep in your radar are Merck, Intel, Cisco, Pfizer, and Cisco.

Is Dow Jones a buy?

After looking at individual stocks, is Dow Jones a buy in the next half of the year? On the daily chart, we see that the Dow Jones is under pressure as investors remained concerned about the rising infections in the US.

The price is currently slightly above the 50-day and 100-day exponential moving averages. It has also moved from slightly above the 78.6% Fibonacci retracement level and moved to slightly below 61.8% retracement. (This retracement was drawn by connecting this year’s highs and lows)

Still, the price is above the ascending trendline shown in black. This line connects the lowest levels in April, May, and June. Therefore, so long as the Dow Jones is above this price, the upward trend is likely to continue.

On the other hand, a move below $25,291 will invalidate the price action. This price is along the 50-day and 100-day EMAs. It is also slightly below the 61.8% retracement and is along the ascending trendline.

Dow Jones
Dow Jones technical forecast