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This column was originally published on RealMoney on Feb. 23 at 11:30 a.m. EST. It's being republished as a bonus for readers.

On Tuesday, I examined the considerable challenges the

Dow Jones Industrial Average

faces as it pushes to the top of a

six-year trading range. Any upside that it claws out in the second quarter will, I believe, be largely due to five stocks that I will share with you below.

I've traded 24 of the Dow's 30 components over the last 10 years. I get a wave of excitement whenever one of these stocks flashes a strong buy or sell signal.

After all, a good part of the American dream sits on the shoulders of these blue-chip giants.

Unfortunately, the index has been stuck in neutral since the beginning of this century, but that hasn't stopped a handful of its diverse components from assuming the leadership mantle at different points in time.

Keep in mind that the following stocks look more like long-term position trades now than portfolio candidates. Frankly I'm not seeing many stocks, in or outside the Dow, that look like fantastic investments in this difficult environment.

The aerospace and defense sectors have held up well in the first quarter. Group leader



hit an all-time high of $71 in late 2000 and pulled back in a deep correction. It found support three years later in the mid-$20s and started a slow but steady recovery. The stock returned to its five-year high last December and was turned away once again.

Price bounced back to this critical level for the third time last week and is now pressing into uncharted territory. Its remarkable strength in the face of broad market weakness suggests the company has moved into a major breakout. The first reward target for this rally lies at $80.

I recently listed

Procter & Gamble


as a top pick in my TSC newsletter, The Daily Swing Trade. The stock rallied to its 2000 high at $59 in October and started to pull back. It returned to this level in December, pulled back again and then broke out to a new high. This completes a multiyear cup and handle pattern.

Although this stock is usually a slow mover, it's been quite active lately. Its excellent chart position and reputation as a safe haven in tough times is attracting a lot of fresh capital. This bullish pattern shows an initial reward target at $65, but the large scale suggests the stock is starting a rally that will last for several months.

American Express


hit an all-time high of $55 in October 2000, then joined the rest of the Dow in a steep decline. It bottomed out in 2001 but didn't really recover until the bull market began in 2003. Since then, the stock has pushed slowly back to five-year resistance. It finally reached its old high earlier this week.

Stand aside here and watch the price action. It should pull back for a while and then take a run toward $60. Given the size of the pattern, that might not happen for another four to six weeks until second-quarter earnings season.

United Technologies


is another defense and aerospace company that's been charging higher in recent years. Its powerful rally should continue because defense spending will keep growing in our dangerous world.

The stock hit a high of $59 in December, pulled back for four weeks and shot back to the high in late January. It's been moving sideways this month and just pushed back to resistance for the third time. This completes a "mini" cup and handle pattern. This should yield a breakout that lifts the stock into the $60s during the second quarter.

Unlike the Dow components I've discussed above,

Home Depot


has gone absolutely nowhere for the last 18 months. But that could change soon. The stock is caught in a weekly triangle pattern, bounded by the upper $30s and low $40s. It pushed into pattern resistance ahead of this week's earning release and then pulled back.

This small rally has flipped a number of weekly indictors from the bear to the bull side. This suggests the stock is getting ready to break out of this endless congestion pattern. However, the best approach would be to stand aside and let it prove itself before taking on risk. A high-volume rally above $44 would be a powerful signal to jump on board.

P.S. from Editor-in-Chief, Dave Morrow:

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Alan Farley is a professional trader and author of

The Master Swing Trader

. Farley also runs a Web site called, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback;

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