foxex: Down on Dow

Chart Advisor | Focus on the Price

Monday, February 03, 2020

1. Industrial stock show unusual signs of weakness

2. Are blue chips risky now?

3. The oversupply of oil

Market Moves

The major U.S. stock market indexes appeared to stage a rally coming off of last week's fierce selling. However, the move choked late in the session as sellers took over. Though the S&P 500 index (SPX) closed .75 percent higher than Friday's close, that mark failed to remain above the halfway point in Friday's range. The Nasdaq 100 (NDX) fared better, hanging on to 1.5 percent gains for the session, but the Dow Jones Industrial Average (DJX) only managed a third of the gains the Nasdaq showed.

The chart below tells an interesting story as it displays Invesco's Nasdaq 100 index ETF (QQQ) hanging on to its gains, while the Dow keeps company with iShares Russell 2000 Small cap ETF (IWM) and the Russell microcap index ETF (IWC). The notion that some of the biggest, most successful companies should be shed at a pace comparable to small cap stocks is an unusual phenomenon in market behavior. It may signal a strong shift of investor preference towards big tech companies. It could be that investors may perceive established technology giants as more stable than industrial conglomerates in the current market environment.

Are Blue Chips Risky Now?

No headlines suggest the spread of the Coronavirus has slowed, however it does appear to be relatively contained in China for now. Perhaps this may have been the reason investors were willing to begin today's session by buying up stocks. However, today's results show a clear preference among investors for stocks seen as having less exposure to certain kinds of risks.

While it used to be that market capitalization alone would be sufficient for investors to express preference in a stock that would be less likely to lose money, today it appears that this factor was not enough. The chart below shows a comparison between the Dow Jones Industrial Average and Boeing (BA). Boeing's negative news is well known. But is this the only stock dragging on the average? Hardly.

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The Oversupply of Oil

In addition to Boeing, several of the 30 stocks in the Dow Jones Industrial Average have begun to exhibit severely negative trends, including Walgreen-Boot Alliance (WBA), Caterpillar (CAT), Chevron (CVX) and 3M Corporation (MMM). However, the stock that seems to be showing the most notable difficulty right now is Exxon Mobile (XOM). This notable multinational oil and energy behemoth was for many years the most profitable company on the planet.

The chart below shows how this stock has hit its lowest price in nearly 10 years. When you consider how the past decade rates as one of the best in stock market history, that's a pretty shocking statement. It's easy to blame the stock's weakness on Coronavirus news, but that would be an oversimplification. One simple factoid stands out: Crude oil production was down 14 percent this January compared to the January before, while Natural Gas production was up 28 percent. Investors should be aware that this may be part of a longer-term trend.

The Bottom Line

Stocks fell back after a strong start for today's session. The added selling highlighted the fact that industrial-sector companies are not faring as well as technology companies. Among the stocks that are doing poorly include Boeing and Exxon Mobil.