This is the time of the year when you order your 2016 copy of the Stock Trader's Almanac, you look to book any tax losses, maybe do some rebalancing and make predictions and resolutions for the coming year. Oh, and yes, since 1991 you might consider the "Dogs of the Dow" strategy.
The Dogs of the Dow strategy was popularized by Michael B. O'Higgins. This approach suggests that an investor annually select for investment the 10 Dow Jones Industrial Average (DJIA) stocks with the highest dividend yield at the end of the year and hold them for one year. (Years ago, the easy strategy was to just sell the DJIA when the yield went below 3% and buy it when the yield went above 6%.)
I don't want to compete with this approach, but instead take a technical look at just three DJIA members that had big declines in 2015 and now have some hefty payouts. Wal-Mart (WMT), Caterpillar (CAT), and International Business Machines (IBM).
WMT in the chart, above, has been trying to bottom in the fourth quarter. WMT is now above its 50-day moving average but still below the 200-day average. With a relatively flat On-Balance-Volume (OBV) line, we don't see the fresh accumulation needed for a sustained advance.
Recently, CAT (chart above) has traded around its 50-day moving average, and is still below its declining 200-day. Like WMT, a flat OBV line suggests that CAT is not ready for sustained strength.
IBM just firmed back above its 50-day Simple Moving Average, but like WMT and CAT, it is still well below its 200-day average. Again, the OBV line is not foreshadowing a revival.
The Dogs of the Dow strategy may work nicely in 2016, but I would rather wait for more positive technical evidence on these three names before making a commitment.
