3 Stocks That Would Be Hurt by a Strong Dollar

With global growth possibly faltering, we're seeing inflows into a variety of safe-haven investments. Gold has gained about 17% over the past three months, while silver has climbed by 19% over that time. The 10-year U.S. Treasury note is rallying, and as a result its yield recently fell below 1.5%.

Another safe haven in troubled times is the U.S. dollar. The greenback has been in rally mode since late June, and now the U.S. Dollar Index is approaching multi-year highs.

The strong dollar will create winners and losers. Which stocks are likely to suffer a negative impact from the strong dollar?

Companies that do a significant portion of their business overseas are the most likely candidates to take a hit. For example, Johnson & Johnson (JNJ) garners more than half of its sales from outside the U.S. This means the company will collect a significant portion of its revenue in weak currencies, like the euro, and then exchange those currencies for U.S. dollars at an unfavorable rate.

J&J's weekly chart already seems to reflect this reality, as a large double top has formed on the pharmaceutical and consumer products giant (semicircles). This pattern indicates that after a long rally, bulls are no longer able to generate new highs in the stock.

Using an old-school measuring technique, this bearish pattern projects JNJ to just below the $100 area (point A). This represents a potential drop of about 24%.

Another big U.S. company that does a significant amount of business overseas is Caterpillar (CAT) . The Illinois-based equipment manufacturer generated just 41% of its revenue from inside the U.S. in 2017. To make matters worse, Caterpillar garners a significant portion of its revenue from China, which is currently involved in a trade war with the U.S. This has led to several recent warnings from Caterpillar regarding sales of construction equipment in the Asia-Pacific region.

CAT's weekly chart reveals a large descending triangle pattern (black lines). This bearish pattern indicates that sellers are gaining strength. Using a measuring technique, the pattern projects the stock to the $95 area (point A).

Finally, take a look at 3M (MMM) . The manufacturer of almost 55,000 items generates only about 40% of its sales within the U.S. The stock is down 15% year-to-date.

3M has formed an A-B-C-D pattern that could see the stock fall as low as $120. Notice that the stock's volume has been increasing as it moves lower, a sign of institutional distribution (shaded yellow).

Again, these are companies that are likely to face a headwind from the strong dollar. Next time, we'll look at several names that stand to benefit from a strong dollar scenario.

At the time of publication, Ponsi had no positions in any of the securities mentioned.