Mini Bear Finally Breaks This Market’s Toughest Stocks

Bear Finally BreaksLast week’s trading action in the stock market was just plain awful; not even good news could get investors buying. And while all the risks, like sovereign debt, the upcoming “fiscal cliff,” and slowing earnings growth, are significant, they aren’t surprising; in fact, they are already a part of current investor sentiment. Geopolitical events in the Middle East aside, I call this the lull, the period of time between earnings seasons when stock market investors tend to focus more on worries and less on corporate reality.

This stock market isn’t going anywhere without Apple Inc. (NASDAQ/AAPL), Google, Inc. (NASDAQ/GOOG), and Amazon.com, Inc. (NASDAQ/AMZN)—the “AGA stocks.” While the majority of large-cap technology stocks have been breaking down for some time now, the AGA stocks have only recently capitulated. Earnings growth in the rest of the sector is becoming a hard thing to come by, and countless brand names among technology stocks are significantly down in price.

Of course, a lot of other stock market leaders recently began to turn. The Walt Disney Company (NYSE/DIS) has been one of the best-performing Dow stocks; but the position recently broke its 50-day moving average (MA) and, at $45.00 a share, will soon break its 200-day MA. The stock is currently trading around $47.00.

Walt Disney Chart

Chart courtesy of www.StockCharts.com

Even Wal-Mart Stores, Inc. (NYSE/WMT) has succumbed to the mini bear. This Dow stock held up right until the end of October before going into a meaningful downtrend. The company’s third-quarter earnings were solid, but like so many other large companies, revenues came in disappointingly light. Wal-Mart’s stock chart is featured below:

Wal-Mart Stores Chart

Chart courtesy of www.StockCharts.com

Investors are looking at current expectations for earnings growth (which are flat), they are seeing declining revenue growth, and they are then re-evaluating their exposure to the stock market. Even with dividend income, if corporate earnings aren’t growing, then they are not worth paying for. And given the investment risk in the stock market, which is significant, cash is a more attractive asset.

The stock market is currently oversold and due for a technical rebound (see “Many Stocks Already Experiencing Their Own Market Correction”), but this doesn’t mean it won’t go down further. With sovereign debt, the upcoming fiscal cliff, and current geopolitical events to focus on, the main stock market averages are likely to continue their decline. Earnings expectations are now secondary.

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