It’s a theory that’s treated me well for years…
You simply buy the 10 Dow stocks with the highest dividend yields that have fallen out of favor with investors. And, after a year of holding, you’re supposed to walk with gains across the board and a dividend to boot.
2013 should prove to be another successful year for the Dow, as markets push record, nosebleed highs on the heels of incessant, and reckless, money printing.
But I digress…
If you followed my advice on January 8, 2013, you bought AT&T (T) Verizon (VZ) Intel (INTC) Merck (MRK) Pfizer (PFE) DuPont (DD) Hewlett Packard (HPQ) General Electric (GE) McDonald’s (MCD) and Johnson & Johnson (JNJ)… otherwise known as the 2013 Dogs of the Dow.
Here’s how each is doing after a month of trading:
AT&T found solid double bottom support just below $33 before running to $35.
Verizon is up slightly from about $42 to more than $43.50.
Intel ran from a low of about $20.50 to ore than $23.
Merck ran from $40 to more than $43.
Pfizer exploded off $24.70 lows to more than $27.50 in less than a month.
Hewlett Packard ram from $14 to more than $17.
General Electric ran from about $20 to more than $22.50.
McDonalds’s ran from $87 to more than $95.
And Johnson & Johnson ran from $69.50 to more than $74.
So far, so good… right?
It may be a good idea to begin taking some of those gains off the table, though, even though we’re only one month into the New Year.
And that’s because the Dow – and most markets for that matter – are grossly overvalued and over-extended. Take a look at the Dow, for example.
This is a picture of insanity at its best…
There is no way this can sustain itself. It’s toppy at the upper Bollinger Band. Williams % Range says is overbought. MACD and DMI are screaming sell me. And RSI is in nosebleed territory. Worse, the bulls have gotten way ahead of themselves again. A reversal is in the cards.
But, as with all trades these days, this one carries a fair amount of risk, too. Do not risk the house. Do not risk more than you can afford to lose. Play it safe.
The best way to trade this wild over-extension is with DIA put options, which we’re already profiting from in Speed Retirement.
Take good care,
Ian L. Cooper
Speed Retirement System