Can the Dow sustain all-time highs while component stocks have technical breakdowns?

‘The Dow Is Rising, but Big-Name Stocks Are Hurting

Big names such as GE, Travelers, Coke, and J&J look weak on the charts.  That could signal danger.

At first glance, the Dow Jones Industrial Average looks pretty good on the charts.  A relentless rising trend and market-leading performance by big stocks should be permission for investors to just enjoy the ride without using any fancy strategies.

But traditional indicators such as the advance-decline line can mask deeper problems.  When several component stocks in the Dow collapse behind the scenes, it’s worth taking a closer look.

Is ‘collapse’ too strong a word for what has happened over the past few days?  That depends on your personal market opinion, but insurance giant Travelers Cos. nose-dived Tuesday to the tune of 3.8%.  At its worst level, it was down 5.1%, but the real story is that the decline formed a downside breakaway gap on the chart.”

”The point is that while we focus on big rallies in tech giants such as Microsoft and Intel, there are more severe negative reactions that seem to be overlooked.  Normally, when an index moves higher despite such bad news it is a bullish signal.  But in this case, we have to wonder if leadership within the Dow will soon narrow to the point where the rising trend is unsustainable.

What will the tipping point be?  That is impossible to know, but if the rest of earnings season provides chart action with a similar ratio in favor of breakdowns, then it is a good bet that the Dow itself has started to roll over.

For now, the trend is still to the upside.  The takeaway is to watch the breadth data on big stock indexes.  If they start to weaken more than they already have, then broad market price weakness is likely to follow.”