The Dow Jones Industrial Average of blue chip stocks is trading higher for the week, but is still in correction territory, having posted losses in each of the past three months.
However, it’s a smart idea to keep your watch list current during market downturns. Stocks that hold up better than others in a correction are often poised for big gains when the broad market rallies.
Dow stocks in that category include Microsoft Corp. (NASDAQ: MSFT), Amgen Inc. (NASDAQ: AMGN), UnitedHealth Group Inc. (NYSE: UNH), International Business Machines Co. (NYSE: IBM) and Walmart Inc. (NYSE: WMT).
These days, the Dow is considered less relevant than the broader S&P 500, as the Dow comprises only 30 large-cap companies, whereas the S&P 500 includes 500 diverse stocks. That means the S&P 500, as tracked by the SPDR S&P 500 ETF Trust (NYSEARCA: SPY), offers a more comprehensive snapshot of the market.
Price weighting doesn't reflect quality or value
Additionally, the Dow is price-weighted, meaning higher-priced stocks have more influence, potentially distorting its representation. That’s a bit of an archaic way to weigh an index, as a stock's price does not necessarily reflect its quality or value.
Quality depends on various factors such as financial health, management, and growth prospects, not just its market price.
However, plenty of investors, particularly the mainstream media, still follow the Dow due to its historical significance; it's one of the oldest and most recognizable market indices. It can be a quick gauge of market performance, though it’s important to remember that it only reflects the performance of a small number of large-cap U.S. stocks.
Microsoft forming a base
The stock is forming a consolidation below its July 18 high of $366.78 and closed on October 31, 3.3% above its 50-day moving average.
While the market is in a downturn, use caution with Microsoft or any stock that’s forming a solid base; best to continue watching it and wait for the broader market to regain its health.
Amgen beat analysts' views
Amgen’s chart shows the stock falling 2.85% after its quarterly report. The company beat analysts’ views, as you can see using MarketBeat’s Amgen earnings data. Amgen also increased its revenue forecast, but analysts weren’t satisfied with the company’s prospects for organic revenue growth.
Amgen stock fell to a session low of $249.70 on October 31, managing to hold above its September 6 low of $248.38.
Amgen stock is still outperforming 89% of stocks on the market, going by its relative strength versus the broader S&P 500
UnitedHealth gets moving average support
UnitedHealth Group’s chart shows a stock getting solid support as it pulled back to its 21-day moving average. The stock gapped up 1.05% on October 31 as the broader market staged a wide rally.
UnitedHealth earnings data show the company has a long history of beating both revenue and net income views. When the company reported quarterly results on October 13, it said lower-than-anticipated medical costs helped the bottom line. The company also increased its full-year guidance.
IBM moves higher after earnings
Dow component IBM, which over the years has completely reinvented itself and is now a tech services firm, rather than a hardware maker, has shown excellent price action since its most recent earnings report.
A look at the IBM chart shows the stock gapping up 4.87% on October 26 and building upon those gains. IBM dividend data reveal a 28-year track record of boosting the shareholder payout, landing the stock a place on MarketBeat’s dividend aristocrats stock list.
Walmart forming cup with handle
The Walmart chart shows the stock forming a bullish cup-with-handle base, with a buy point north of $164.33. The stock has been trending higher in recent sessions, in tandem with the broader market, but with the market yet to follow through on a rally attempt, stock breakouts are at a higher-than-normal risk of breaking down.
Walmart’s revenue has been growing at a steady rate in the mid-to-high single digits in recent quarters. Wall Street expects the company’s earnings to grow by 3% this year and another 10% next year.