The U.S. stock market, by almost any measure, is at all-time highs — but it doesn’t necessarily feel like it. This hasn’t been a market marked by explosive gains. In fact, the S&P 500 hasn’t had a day with a 1% gain in a full month.
Equities aren’t acting like they did in late 2016 after the U.S. presidential election, or even early this year, when they roared back from a Q4 sell-off. There has been a gentle drift higher, but no sharp gains and no big catalysts.
Earnings season was solid, but this quarter’s batch of earnings reports doesn’t look noticeably different from the group that sent U.S. stocks falling in July. Progress toward a resolution of the trade war continues in fits and starts. Market bulls are winning, but in mixed sessions like that seen Monday, they seem to be doing so almost quietly.
There are two ways to view that trading. The first is to cast some skepticism on the rally as a “melt up”: a low volume, low-energy drift higher. The second is to believe that the muted optimism suggests the rally has another leg — and might finally bring some forgotten stocks, and sectors, along for the ride.
Tuesday’s three big stock charts are for investors who take the latter view. All three have to some degree missed out on the 2019 rally, even if one is challenging all-time highs. And, coincidentally or not, all three big stock charts highlight some potential concern.
Those charts don’t make these stocks a sell. But they do suggest that investors buying these names at the least should have some conviction in doing so.
Exxon Mobil (XOM)
In theory, an energy stock like Exxon Mobil (NYSE:XOM) should be outperforming in a bull market rather than lagging it. To be sure, Exxon Mobil’s downstream operations limit the impact of higher oil and gas prices, but historically XOM stock has benefited from macro optimism.
But declining energy prices this year have kept a lid on XOM stock. With yet another rally fizzling in recent sessions, the first of our big stock charts suggests investors will have to be patient:
- The recent rally had the potential to set up a breakout. XOM stock had established a multiple bottom around $67. A solid third-quarter earnings report sent the stock above its moving averages, and created a path toward at least the mid-$70s. But the optimism has faded quickly, and suddenly investors are left hoping that the 20-day and 50-day moving averages will again provide support.
- All hope is not lost. As I wrote this summer, Exxon’s dividend does suggest support should hold around $70, at which point XOM stock offers a 5% yield. Investors have been willing to briefly let the stock dip below that level, but at least in recent months they’ve stepped in not far below that price.
- That said, the lower lows established by recent trading create a bearish descending triangle pattern which puts more pressure on that support. If XOM breaks through moving averages at $70, the next test is back at $67. If shares break that level, Exxon Mobil stock would be challenging not just a 52-week low, but an 8-year low.
- Such trading might appear surprising. But the now-slowing shale boom has unleashed a torrent of supply onto oil markets. Worldwide demand remains muted. And cyclical fears persist. XOM stock has been ‘dead money’ for years now, and the chart suggests that trading will continue sideways at best.
Newell Brands (NWL)
Newell Brands (NASDAQ:NWL) certainly has benefited from a more optimistic market in recent months. Shares have bounced nearly 50% in less than four months. But NWL stock is up just 5% so far in 2019, and the second of our big stock charts suggests that figure could revert to a decline in short order:
Click to EnlargeThere’s some evidence that the post-July breakout is stalling out. NWL stock now sits over 5% below where it traded after a Q3 earnings beat on Nov. 1. And it’s worth noting that volume for most of the rally has been rather light. With no catalyst on the horizon and few buyers likely left, a confirmed drop below the 20-day moving average would signal further declines.
- Fundamentally, there’s still a case that NWL stock could hold these levels — but it’s not an airtight argument. Newell Brands stock does trade at less than 12x the midpoint of 2019 earnings per share guidance. But the balance sheet still has substantial debt, and that guidance also projects declining revenue this year. Given those factors, NWL looks like a stock that’s cheap because it should be cheap.
- Interestingly, other highly leveraged but potentially questionable turnaround plays have risen nicely in recent months as well. Mattel (NASDAQ:MAT) and Bausch Health (NYSE:BHC) are just two examples. In a market that increasingly seems to be looking for value over growth, NWL is one example that suggests investors might be stretching too far.
Union Pacific (UNP)
Union Pacific (NYSE:UNP) admittedly has had better long-term performance than the names in our first two big stock charts. XOM threatened a multi-year low this summer, and NWL is down 60% from 2017 highs.
That said, UNP stock has struggled to break out to new all-time highs. And recent trading suggests this time might not be any different:
- As seen in the near-term chart, resistance has held either at $177 or $180 on three occasions this year. The recent fade suggests a lack of momentum, and a potential reversal to at least the 20-day moving average back toward $171.
- UNP isn’t alone in terms of railroad stocks. Most major names, including CSX Corporation (NYSE:CSX) and Norfolk Southern (NYSE:NSC) have flattened in recent sessions. Supplier Wabtec (NYSE:WAB) has a similar chart, as discussed last week. There, too, resistance has held, at least for now.
- For an economically-sensitive group, that trading could be a modest caution sign for the broader market. At the least, it further highlights the strange nature of U.S. stocks at the moment. Broad market indices are at all-time highs — but, again, it doesn’t feel like it. The fact that railroads can’t quite break out is just one more reason why that’s the case.
As of this writing, Vince Martin has no positions in any securities mentioned.