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Small cap stocks, mid cap stocks, in fact, a LOT of US stocks have done very well (so far) in 2013. But some big names in the Dow Jones Industrial Average are underperforming. And these big names I’m going to mention have even given a fairly important negative divergence.

Through our friends at Dorsey Wright and Associates in Richmond, VA, we’re able to see the technical attributes of four well-known members of the Dow Jones Industrial Average. And we note that all four have given important relative strength sell signals.

Just about two weeks ago, near the end of September, IBM, Proctor & Gamble (PG) and Chevron (CVX) all gave relative strength sell signals. And now in the last week, McDonald’s (MCD) also gave a relative strength sell signal.

None of these stocks have really cratered. But a quick glance at the trend charts of these four stocks clearly show they have struggled in 2013, which is a year where many stocks in general, have done well.

These relative strength sell signals are important, because these signals are long-term in nature, often lasting anywhere from 18 months to two years, on average. Some signals are longer, some shorter.

Keep in mind a relative strength sell signal does NOT mean the stock is facing an imminent collapse. What a relative strength sell signal implies is under-performance, relative (compared to) the rest of the market.

Let’s walk through an example: Suppose we are in a strong upward stock market, and the major “yardsticks” (the Dow Jones Industrial Average, the Standard and Poors 500) are up 20%. A stock carrying a relative strength sell signal might only be up 15% or 18% (or, something less than the yardstick), which means it has under-performed the yardstick. A chart with a relative strength sell signal could also turn in a flat, or down performance, of course.

On the flip-side, a stock with a relative strength BUY signal tends to out-perform the major yardsticks in place. Again, these relative strength signals are long-term in nature, often lasting anywhere from 18 months to two years, on average.

A stock (or a sector) generating negative relative strength is something we would like to avoid. While it is still is possible we can make money with a stock on a relative strength sell signal, it’s fighting an uphill battle. Not easy. We like stacking as many odds as possible in our favor. So we consider a relative strength sell signal to be important.

But are these signals merely four flukes that all happened close together? Or is there something more?

In fact, looking at the thirty stocks that make up the Dow Jones Industrial Average, it is amazing to see how poorly so many of the members of the Dow Jones are, technically speaking. At the present time, you may be surprised to know 18 of 30 members of the Dow Jones are on Relative Strength Sell signals.

In fact, HALF of the thirty names in the Dow Jones are rated so poorly on a technical basis they would not be worthy of shopping-list consideration (to me). And just six of the thirty Dow Jones names meet our criteria for investment at the present time. Only six!

What’s happening in the market overall, then, is even more impressive when you consider these big names in the Dow Jones Industrial Average are underperforming.

What could be the reason for this difference, compared to other areas of the market?

Just a hunch. But this may be showing that investors are feeling more confident and willing to take more risk by investing in smaller, lesser-known names. Investors in general may feel less need for a safer dividend-paying name like IBM, Proctor & Gamble, Chevron and McDonald’s.

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