Dow 18K is officially back on the horizon as the index has rallied to within 3 percent of its all-time high. But while Wall Street eyes that as the next important level, some traders are looking at what stocks could take the index into uncharted territory: Dow 20K.
“For the Dow to significantly move higher, underperformers need catch up,” the head of sales trading for Cowen and Co. said Thursday. Since the Dow is a price-weighted index, stocks with high nominal share prices carry more weight than lower-priced stocks, even if those lower-priced stocks have bigger market caps. In other words, a stock such as Goldman Sachs has a greater impact on the Dow than a stock like Apple, even though Apple is eight times bigger from a market cap perspective. It’s because of that dynamic, Seaburg says “the bottom dwellers to get moving” in order for the Dow to really get going.
Of the worst-performing stocks in the index, Seaburg flagged Exxon Mobil, Caterpillar and Chevron as the “best positioned” to take the Dow higher long term. Shares of each company are down a respective 9, 21 and 17 percent year to date. “Caterpillar will benefit from continued global economic improvement, and Exxon and Chevron will benefit from strength in the crude market as well as potential strategic M&A.”
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Looking at the chart of the Dow, technician Craig Johnson said the index is poised to break new highs as early as next year.
“The chart remains very bullish,” Johnson said on Thursday. “At this point in time, the Dow is on track to retest the May highs and that sets us up to consolidate in the beginning of 2016 and then break topside for fresh highs,” added the Piper Jaffray strategist. “I think there’s more room to run for the Dow and broader market.”
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