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Hewlett Packard takes top slot in Dow Portfolio

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Just after the September 11th terrorist attacks in the U.S. we thought it would be informative, if not interesting, to put together a hypothetical portfolio where an investor place approximately $1,000 in each of the Dow 30 stocks as of September 10th's close.

It's been a wild and very interesting ride for many of the stocks and over the weeks, we've seen a lot of rotation. Some stocks have stayed at the lower end of the portfolio, but we have seen a few act almost like a horse and slowly move their way to the head of the pack.

Today is such a day for shares of Hewlett Packard (NYSE:HWP) the past couple of weeks, this stock has been moving up the pack and today holds the #1 slot, which it has never held since we started this exercise. This morning, HWP reported earnings of 19 cents a share, which was well above expectations for earnings of 11 cents a share.

Today's Dow Industrials Hypothetical Portfolio from Sept. 10

The red line divides the Dow Industrials in half. The green line gives us a quick visual of those stocks that are now trading above break-even since their September 10th close (day prior to terrorist attacks). I feel politically incorrect that I've used the analogy that the green line moving lower is similar to an instrument gauge on an airplane and when the green line moves lower, the nose of the plane (or direction of the index) should be showing improvement or higher elevation.

Here's what the hypothetical portfolio looked like on September 27th, with just 5 stocks showing gains since their September 10th close

What hypothetical portfolio looked like on Sept. 27th

With the exception of Wal-Mart (NYSE:WMT) there's been quite a bit of rotation and movement within the Dow Industrials since September 10th.

You'll note that "telecom" stocks like SBC Communications (NYSE:SBC) and AT & T (NYSE:T) have rotated lower since September 27th. Look at Hewlett Packard (NYSE:HWP) "compute"! On September 27th, it was "ranked" #18 (blue 17 next to HWP was previous week rank from Sept. 27th). Look at International Business Machines (NYSE:IBM) "computer". On September 27th, it had fallen from a #4 ranging to then rank #13 on Sept. 27th. Today (top chart) IBM ranks #3.

Hmmm.... "telecom" stocks rolled lower, while "computer" stocks rolled higher. Maybe there is some use for keeping an eye on the Dow stocks, understanding their sector association and monitoring for movement/rotation.

Lately, I've been using the above information to try and identify bullish trades in General Electric (NYSE:GE) and just yesterday in the "market monitor" on OptionInvestor.com thought that shares of International Paper (NYSE:IP) might be poised for a move higher.

Jeff Bailey
Senior Market Technician
Option Investor

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