A Dire Signal From the Dow?

The past week or so has been a rough one for the Dow Jones Industrials (INDEX: ^DJI  ) , which have fallen about 2.5% in the past five days on fears of everything from a global economic slowdown and problems in Europe to uncertainty about the possible effect that the Supreme Court decision could have on health-care reform laws.

But to get some insight on what's happening with the Dow, it's often helpful to turn to the other two Dow averages: the Dow Jones Transports (INDEX: ^DJT  ) and the Dow Jones Utilities (INDEX: ^DJU  ) . In a somewhat unusual twist, both the Transports and the Utilities are down more than the Industrials over the past week.

Admittedly, five days is so short a time period as to be nearly meaningless in the long run. But what's perhaps most interesting is that even after the Transports followed the Industrials lower on Thursday, the Transports failed to recover any of their gains on Friday.

Still, a lot of that underperformance may simply come from the stocks in question. The big losers in the Transports today, for example, are Southwest Airlines and Delta Air Lines (NYSE: DAL  ) , both with other airlines also following them lower. Although falling oil prices should help the airline companies, most airlines have hedges in place to guard against changes in energy costs. That leaves the focus on getting more revenue from customers -- always a dicey proposition when signs of economic weakness appear. The other transportation stocks in the Dow Transports are also sensitive to a weaker economic environment.

Utilities are also down today, but largely because of one stock: Williams (NYSE: WMB  ) . Today's fall brings the stock's losses to more than 20% since the beginning of May, as weakening oil prices call into question the economic viability of many newly formed oil and gas operations and could in turn reduce demand for the ancillary services that Williams provides to the industry.

You can't draw any dire conclusions about the performance of the Transports and Utilities compared to the Industrials just yet. But unless one of the Dow averages steps up to assume a leadership role soon, the entire market could be in for a choppy ride.

Keep sight of the big picture
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Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. You can follow him on Twitter @DanCaplinger. Motley Fool newsletter services have recommended buying shares of Southwest Airlines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (10)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 25, 2012, at 3:52 PM, DAG1996MF wrote:

    WMB is a utility now? lol

  • Report this Comment On June 25, 2012, at 4:04 PM, DAG1996MF wrote:

    And I'm certain it was an unintentional oversight to define one of the strongest companies in its sector as a loser by picking the new 2-YEAR HIGH it made a month ago and spinning its decline from that high (ALONG WITH THE REST OF THE SECTOR & MARKET DIVING) as a telling 20% loss -- while conveniently forgetting to mention that WMB had run up 30% since the beginning of the year. I look forward to the so-called analysis of all the other stocks in the sector that are up over 10% year-to-date even after two of the worst days of the year.

  • Report this Comment On June 25, 2012, at 4:14 PM, TMFGalagan wrote:

    @djohn1969 - Yes, it is. :)

    http://www.djaverages.com/?go=utility-components

    As for Williams' bull run earlier in the year and subsequent plunge, it's pretty consistent with behavior from most pure energy companies.

    best,

    dan (TMF Galagan)

  • Report this Comment On June 25, 2012, at 11:07 PM, AnObservation wrote:

    Williams is out of institutional favor. We are slowly learning that most of the stock market moves since 2010 are primarily insitutions trying to outsmart/outtrade other institutions,irregardless of a company's current performance or perceived changes

    July puts outnumber calls by 33K to 10K, reversing the hugh call-to-put ratios of the last 12-18 months.

    The boys are rotating out of WMB before the June quarter end, as takeover speculation and the price of natgas have diminished.

  • Report this Comment On July 23, 2012, at 1:33 PM, YOUNGDRAWN wrote:

    To get access to this exclusive bundle of informative videos, advisor roundtables, special reports, articles

  • Report this Comment On July 23, 2012, at 1:35 PM, YOUNGDRAWN wrote:

    Williams is out of institutional favor. We are slowly learning that most of the stock market moves since 2010 are primarily insitutions trying to outsmart/outtrade other institutions,irregardless of a company's current performance or perceived changes i this year

  • Report this Comment On July 23, 2012, at 1:36 PM, YOUNGDRAWN wrote:

    The boys are rotating out of WMB before the June quarter end

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