Stocks moved lower again Thursday, then again Friday, as earnings disappointments continue to weigh on investor sentiment.
Technically, breadth remains a challenge for the broad market as the second-quarter earnings season has not gone as the optimists had hoped. Yet stocks remain just off of their record highs.
For the past week through Tuesday, this condition has resulted in more than 2% of the stocks on the NYSE Composite reaching a 52-week high while more than 2% have reached a 52-week low. This split market condition for five days in a row was last seen in January. Before that, according to Jason Goepfert at SentimenTrader, it was last seen in July 2007 and December 2000.
Long story short: The market is looking very toppy here.
As a result, I have recommended a number of large-cap put option positions to my Edge Pro subscribers, including two of the following four Dow Jones Industrial Average components that are in trouble.
Dow Jones Titans in Trouble: Intel (INTC)
The October-March lows in Intel (INTC) shares have been broken as PC sales implode and semiconductor innovation slows (with delays in new, smaller chip sizes). And despite Street-beating earnings, Intel hasn’t been able to reverse its downward course.
It’s also doubtful that the release of Windows 10 will spur a surge of new PC sales since Microsoft (MSFT) is giving the software away for free.
I have recommended the Aug $29 puts to my clients.
Dow Jones Titans in Trouble: General Electric (GE)
General Electric (GE) shares are dropping to the lower end of a trading range going back to April, setting up a retest of the early July lows near $26. The company reported in-line results on July 17, and investors have been busily selling ever since.
I recommended the GE Aug $27 puts to my Edge Pro subscribers on Tuesday, and the position is already showing a gain of nearly 114% — and there’s room for more.
Dow Jones Titans in Trouble: Dow Chemical (DOW)
Dow Chemical (DOW) was hammered on Thursday and saw follow-through selling today after reporting a 13.5% decline in sales to a weaker-than-expected $12.91 billion.
Although earnings came in better than expected, the top-line miss pushed shares back below their 200-day moving average for the first time since early April.
Dow Jones Titans in Trouble: Caterpillar (CAT)
Caterpillar (CAT) shares have crashed below their March lows, taking the stock back to mid-2013 levels, after reporting a 13% drop in revenue to a lower-than-expected $12.3 billion.
The company also lowered its full-year revenue guidance on an expected drag from lower energy prices.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
