Checking the Blue-Chip Laggards

Flipping through my trades and market calls in the past month, I'm struck by the number of Dow Industrials components showing up on my long-side activity lists. Hewlett-Packard(HPQ Quote) was the latest table-pounding exercise involving the venerable index, with my bullish One-Minute Trade video on the hardware giant just two days ago.

A buy call on McDonald's(MCD Quote) at $60 has been the hottest pick in my TheStreet.com newsletter The Daily Swing Trade, while a long-term International Business Machines(IBM Quote) position is lighting up my 2009 portfolio. Indeed, the Dow Industrials are grinding through one of those golden moments that make an entire year's worth of profits.

However, it feels like the pile-in Dow trade is getting "long in the tooth" after the rally to 10,500, with many index components bid up to lofty price levels where substantial pullbacks might begin. As a result, I think it will be harder to find great trades among the membership from now into year's end.

Fortunately, institutional money tends to rotate through Dow components, rather than exiting in order to find greener pastures in other market groups. These closed-system dynamics could give index laggards a lift in coming weeks, so I've conducted a pattern-focused review of the worst-performing members, looking for unexpected opportunities.

I started my analysis by looking at the stock's relative positioning vis-a-vis the 200-day moving average, rather than sorting percentage gains or losses over time. This process lowered the impact of volatility and stock price, while highlighting trend development through a period of nine to 10 months.