Bears’ Growls Drove Some to Safety

Investors fled to the relative safety of utility stocks and took profits in the transports

The last week in July began slow, with little change in the major indices and light volume. In The Wall Street Journal, the lethargic start was attributed to investors holding back as a number of high-profile economic and earnings updates are due later in the week.

There will be a total of 148 earnings reports from companies in the S&P 500 this week. So far, the average growth rate has been 8.7% versus 2.2% in Q1, according to FactSet.

However, home sales are lagging. According to the National Association of Realtors, pending home sales fell 1.1% in June, and the May reading was revised downward.

In M&A activity, Zillow (Z) acquired Trulia (TRLA) for $3.5 billion in stock. And technology stocks, led by Apple (AAPL), up 1.4%, were strong. Biotech was weak with the iShares Nasdaq Biotechnology (IBB) losing 0.9%.

The major economic report of the week will be Friday’s non-farm payrolls report for July, which is expected to show an increase of 230,000 jobs.

At Monday’s close, the Dow Jones Industrial Average gained 22 points at 16,983, the S&P 500 rose less than a point to 1,979, and the Nasdaq was down 5 points at 4,445. The NYSE primary market traded 589 million shares with total volume of 2.8 billion shares, and the Nasdaq crossed 1.8 billion shares. On the Big Board, decliners outpaced advancers by 1.3-to-1, and on the Nasdaq, decliners exceeded advancers by 1.7-to-1.

DJU Chart
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Chart Key

The Dow Jones Utility Average provides a graphic indication of fear in the market, along with the VIX. We saw investors scurry to the safety and income of the group, but on light volume. Note the pending MACD buy signal and the break through the resistance (now support) line at 558.

DJT Chart
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And while some investors fled to utility stocks, the Dow transports fell to the intermediate trendline and 20-day moving average. MACD issued a weak sell signal. If the index penetrates the intermediate trendline, the next major support is at the 50-day moving average at 8,114.


You have no doubt heard the saying, “They don’t ring a bell at the top or the bottom.” However, you would never accept that if you have been reading The Wall Street Journal, which for days has headlined bearish articles on the front page. Today it was, “With Stocks So High, Should Investors Move to Cash?” and “Upbeat Earnings Fail to Dent Sanctions Pessimism.” And on Friday, there was a quote from a floor trader who said that big investors were moving to the sidelines. On 589 million shares, really?

And CNBC isn’t far behind with the bearish growls. When everyone is talking pullback, it very seldom occurs. But on Monday, the bear talk did drive some investors to the relative safety of utility stocks and even resulted in profit-taking in the transports.

If stocks are so overbought, why did the transports — a major forward indicator of the economy — make a new high in the face of so many negative developments? The only bells I hear are those of the rails and airlines clawing their way to new highs.

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.

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