Blue-Chip Lows Hint at Market Mayhem

How can we expect anything but continued market turmoil when dominant companies in the biggest sectors keep moving lower?
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By Jeff Reeves of InvestorPlace

A brutal

housing report yesterday morning sent the market into a tailspin, and the

Dow

pushed below 10,000 for the first time in six weeks. But after investors digested the news of a gut-wrenching -27% drop in existing-home sales, the selloff softened. The broader markets still finished down, but the Dow reclaimed five figures by the closing bell.

The housing report was ugly, to be sure. Yet it's been months (or years depending on your standards) since the last really good news from this sector -- and we've always known a sharp drop was in store after home-buyer tax credits expired. So we shouldn't read too much into Tuesday's declines, right?

Wrong. The fact is, housing is the least investors have to worry about.

While the deep drop in early trading Tuesday caused a rash of new lows across Wall Street -- more than 150 new 52-week lows on the

NYSE

and more than 200 on the

Nasdaq

according to

MarketWatch

-- major retailers, banks and tech stocks stand out as the most disturbing decliners. When iconic blue chips worth more than $100 billion are at their lowest point in a year, it's only a matter of time before that pain gets spread around.

Here are some select lows from Tuesday's session:

Tech Stocks

Dell set a new 52-week low of $11.34 Tuesday.

Hewlett Packard set a new 52-week low of $38.35 Tuesday.

Yahoo! set a new 52-week low of $13.39 Tuesday.

Cisco was less than 1% away from its low of $20.93 set July 1.

Intel was a mere 0.5% off its low of $18.31 set last November.

Financial Stocks

Bank of America set a new 52-week low of $12.59 Tuesday.

Wells Fargo set a new 52-low of $23.54 Tuesday.

JP Morgan Chase was about 2% away from its low of $35.16 set July 1.

Retail Stocks

The Gap set a new 52-week low of $16.65 Tuesday.

Best Buy set a new 52-week low of $31.38 Tuesday.

Staples set a new 52-week low of $17.96 Tuesday.

Sears was about 1.5% away from its low of $59.21 set July 7

I could go on, but hopefully this list is comprehensive enough to make my point. Namely: How can we expect anything but continued market turmoil when dominant companies in the biggest sectors keep moving lower?

If these flagship blue chips are struggling, how can we even talk about a

recovery

?

Admittedly, looking at stock prices alone is an oversimplification. An objective analysis of a stock like Intel could very well convince some folks this tech pick is a great bargain at current pricing. After all, INTC posted some pretty impressive earnings in mid-July that included an EPS beat, strong margins and raised guidance. The recent bid for

McAfee

(MFE)

could also bring some profitable smartphone chops to Intel. Couple that with a report last week stating the annual rate of business software and hardware spending soared +22% in the second quarter from the first quarter, and you may think things are looking up for this tech leader.

But that's the fundamental problem with stock picking right now -- investors need to convince themselves a company will succeed in spite of what's really going on. And that's a challenging way to make money on Wall Street, at least in the short term.

Besides, it's important to note that no company exists in a vacuum. Broader market psychology can sink even the strongest companies, fairly or unfairly. Stock values are at their core little more than a measure of market sentiment.

And right now that sentiment is dark and getting gloomier by the minute. After all, what does it say about the state of things if investors have no confidence in some of the largest banks, retailers and tech firms -- industries that are the backbone of the U.S. economy?

It may be tempting to find the silver lining from Tuesday's market session. Yes, the Dow's low of around 9,600 set in early July still stands as the bottom so far in 2010. And yes, we shouldn't get too carried away during the dog days of summer when volume is low and volatility high.

Yes, it could have been worse. But if the continued declines among mega-cap stocks in big-time industries are any indication, investors won't have to wait very long before we see just how much worse things can get.

As of this writing, Jeff Reeves did not own a position in any of the stocks named here.