Mixed earnings and falling oil prices sent stocks lower on Tuesday. The blue-chip Dow industrials gained slightly on mixed trading, and the S&P 500 closed off slightly.
Crude prices fell 2.4% to a three-year low, putting pressure on the energy sector. The two major oil stocks on the Dow, Chevron Corporation (CVX) and Exxon Mobil Corporation (XOM), lost 1.2% and 0.8%, respectively. However, while the focus seems to be on the unfavorable impact of lower oil prices, some analysts pointed out that big retailers like Wal-Mart Stores, Inc. (WMT) could benefit.
Other factors pressuring the market Tuesday included a lower GDP forecast for the Europe Union and a potential power struggle at the European Central Bank (ECB). Apparently, many members do not want to support ECB President Mario Draghi’s quantitative easing program of buying sovereign debt.
Sprint Corporation (S) plummeted 16.5% after reporting lower-than-expected earnings. And Priceline Group Inc (PCLN) fell 8.4% after management issued disappointing guidance for the current quarter. Yet, with 395 companies reporting so far, the S&P 500 is on pace to report Q3 earnings growth of 7.9% year over year, according to FactSet.
At Tuesday’s close, the Dow Jones Industrial Average rose 18 points to 17,384, the S&P 500 fell 6 points to 2,012, the Nasdaq lost 15 points at 4,624, and the Russell 2000 fell 5 points to 1,165.
Despite hitting a new high on Monday, the S&P 500 and many of its larger components appear ready for a mild round of profit taking and a consolidation. The 50-day moving average at 1,969 is the first line of support, followed by the long-standing support line at 1,926. MACD is extremely overbought and now appears to be hooking down.
Conclusion
The bull market is intact, but with the broad market pausing, it is time to reevaluate positions and take profits on stocks that have made big runs. Any stock with a P/E ratio over 30 that has run over 30% from its October low is a candidate for profit taking.
Gathering cash for purchases that will participate in the new phase of the bull market is now our priority.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
