In the wake of the Aug. 24 “Black Monday” flash crash, when blue-chip stocks like General Electric (GE) suffered sudden 20%-plus declines and a bevy of exchange-traded funds badly separated from their underlying indices, many proclaimed the worst was over.
Sentiment had been blown out. The bears had gone too far. This was a dip to buy.
I was more cautious.
The technical damage was severe, with the major indices suffering “death crosses” for the first time in years. The fundamentals were challenging, with corporate earnings growth under pressure and the economic data (such as the sales vs. inventories ratio) flashing red.
More simply: If the May 2010 flash crash was any guide, any short-term rebound would give way to a slow meltdown that would test, then slightly exceed, the panic lows. It looks like that is in fact about to play out again as a growing list of blue-chip stocks start rolling over into retests of their Aug. 24 lows, including Bank of America (BAC), which Edge Pro subscribers gained nearly 100% on using put options last week.
Here are seven more Dow Jones Industrial Average blue chips worth watching, either to collect profits on or to play on the short side:
Blue-Chip Stocks Under Pressure: Caterpillar (CAT)
Caterpillar (CAT) shares slid back down to their 52-week closing low on Thursday as indications grow that something is very, very wrong with the Chinese economy.
Analysts at Robert Baird downgraded Caterpillar stock to “neutral” amid an ongoing deterioration in the global mining business amid low prices and weak demand. Their price target of $77, however, still looks too optimistic.
Blue-Chip Stocks Under Pressure: Chevron (CVX)
After surging higher in late August on short covering, crude oil has been drifting lower again in recent days, closing at $44.11 per barrel on Wednesday.
Needless to say, energy companies were pulled down with it — even blue-chip stocks Chevron (CVX).
Barclays analysts lowered their price target on CVX in early August on the fallout from management’s overly ambitious development program. Again, though, its price target of $99, while lower than its earlier $110, seems bright and sunny compared to current Chevron prices around the $75 level.
Blue-Chip Stocks Under Pressure: DuPont (DD)
DuPont (DD) shares were on track to fall to fresh closing lows on Thursday, continuing a massive slide that has taken the stock down 35% from its March high.
Helping fuel the slide was a full-year earnings forecast cut back in late July, which DuPont in part blamed on the spinoff of Chemours (CC), its performance chemicals unit. And what a cut it was — DD now expects earnings of $3.10 per share, versus previous estimates in a range of $4 to $4.20 per share.
Blue-Chip Stocks Under Pressure: Coca-Cola (KO)
Coca-Cola (KO) was knocked out of its long trading range by the late August selloff, and the bulls have been unable to respond. KO shares are drifting back toward the 52-week closing low near $38 — a level that served as support during the selloff last July.
Coca-Cola has been range-bound since 2013, which is when shares first tested above current levels. Investors continue to wait for the company’s efforts to diversify its revenue stream, and a lot is riding on the new Keurig Kold system — which reportedly will cost a seems-too-high $299.
Blue-Chip Stocks Under Pressure: Procter & Gamble (PG)
Procter & Gamble (PG) shares have fallen below their recent trading range and are on track to retest the Aug. 24 flash crash low of $65.
Deutsche Bank recently lowered its price target on PG stock from $96 to $90 amid tepid organic revenue growth as management tried to turn the company into a smaller, faster growing, and more profitable business focusing on a smaller number of product categories and countries.
Blue-Chip Stocks Under Pressure: Exxon Mobil (XOM)
Exxon Mobil (XOM), like CVX, is seeing its shares drift lower as energy prices resume their downward slide.
The stock has been under pressure since reporting disappointing results in late July. The Q2 report was particularly ugly, with earnings dropping by 52% year-over-year to their smallest quarterly figure since 2009.
To add insult to injury, Wall Street didn’t price in that much bad news to its earnings estimates, which Exxon missed by about 5%.
Blue-Chip Stocks Under Pressure: United Technologies (UTX)
United Technologies (UTX), the maker of jet engines and elevators among other things, looks ready to break out of a bear flag pattern as investors grow impatient amid global headwinds.
UTX is already off roughly 20% so far in 2015, with its second-quarter earnings report really drawing the bears. United Technologies saw profits and revenues both come under the Wall Street consensus, and further worried shareholders by cutting its earnings and sales forecasts for the full year.
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.
