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The last two weeks have been breathtaking for the stock market. The Dow Jones Industrial Average (NYSEARCA:DIA) closed at 10,817.65 on Friday, down 1.57%, after having dropped 3.68% on Thursday, August 18, 2011. On a weekly basis, it has dropped about 5.48% during the past two weeks from 11,444.61 on August 5, 2011 to 10,817.65 on August 19, 2011. In addition, it recorded an intra-week low of 10,588.54 on August 9, 2011.

The question on everyone's mind is whether additional losses are still in the cards for the days ahead, or whether the market is oversold and is destined for a possible sustained rally. The most recent losses in the past few days are not surprising as markets often try to retest lows in order to possibly establish a double bottom, or possibly achieve yet a new low.

An often followed indicator of whether markets and stock prices have become overbought or oversold is the Relative Strength Indicator, otherwise known as RSI. It is a momentum oscillator that measures the magnitude and velocity of directional price movements, and it ranges between a reading of 0 and 100. Typically, when RSI for a certain stock is under 25 to 30, it indicates that the stock is becoming oversold, and when the RSI is above 70 to 75, it indicates that the stock is becoming overbought.

As of Friday August 19, 2011, the Dow Jones Industrial average is indicating a 14 day RSI of 34.29. Meanwhile, the 30 stocks listed in the Dow Jones Industrial average are recording RSI readings between 19.89 for Hewlett-Packard (NYSE:HPQ) and 55.36 for McDonalds (NYSE:MCD). RSI readings below 30 can be found for four stocks : Alcoa (NYSE:AA), Intel (NASDAQ:INTC), Hewlett-Packard, and United Technologies (NYSE:UTX).

Such data does seem to indicate that the market is approaching being oversold, although on an RSI basis, there seems to be additional downside room before the RSI for the Dow Jones Industrial average reaches 25. Furthermore, the RSI recorded a reading of about 18.48 around August 9, 2011 when the market reached its August low.

This does indicate that it is not unreasonable to start dipping into the market by buying long term favorite stocks as the market tests its previous lows and as the RSI approaches 25 to 30. Below is a detailed table of the companies listed in the Dow Jones Industrial average and their associated 14 day Relative Strength Indicator (RSI):

Ticker Company RSI

AA

Alcoa Inc. Common Stock

29.63

AXP

American Express Company Common

39.83

BA

Boeing Company (The) Common Sto

31.81

BAC

Bank of America Corporation Com

33.82

CAT

Caterpillar, Inc. Common Stock

31.30

CSCO

Cisco Systems, Inc.

45.91

CVX

Chevron Corporation Common Stoc

38.66

DD

E.I. du Pont de Nemours and Com

31.77

[DIS]]

Walt Disney Company (The) Commo

31.17

[GE

General Electric Company Common

32.33

HD

Home Depot, Inc. (The) Common S

44.60

HPQ

Hewlett-Packard Company Common

19.89

IBM

International Business Machines

33.03

INTC

Intel Corporation

29.37

JNJ

Johnson & Johnson Common Stock

44.52

JPM

JP Morgan Chase & Co. Common St

36.22

KFT

Kraft Foods Inc. Common Stock

42.24

KO

Coca-Cola Company (The) Common

48.62

MCD

McDonald's Corporation Common S

55.36

MMM

3M Company Common Stock

31.62

MRK

Merck & Company, Inc. Common St

39.27

MSFT

Microsoft Corporation

36.79

PFE

Pfizer, Inc. Common Stock

39.86

PG

Procter & Gamble Company (The)

44.97

T

AT&T Inc.

39

TRV

The Travelers Companies, Inc. C

34.87

UTX

United Technologies Corporation

28.52

VZ

Verizon Communications Inc. Com

45.06

WMT

Wal-Mart Stores, Inc. Common St

52.96

XOM

Exxon Mobil Corporation Common

34.87

Dis closure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: A Look at Long-Term Favorite Stocks as the Market Tests Previous Lows