Will the Dow Go Up In Smoke?

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

It's another off day for the Dow Jones Industrial Average (DJINDICES: ^DJI  ) as investors try to decide which way the market will be headed without much data to rely on for support. But as the index waffles between positive and negative territory this morning, with just a 2-point gain as of 11:45 a.m., are those same investors creating the very conditions that could lead to a big market correction?

Floating omens 
With all of the mixed economic data that investors have been getting over the past few weeks, it has been difficult to determine which way is up for the U.S. economy, not just the stock market. It's during these periods of vague information that investors begin looking for signs of change, even if that sign is an unproven "omen."

The Hindenburg Omen has been popping up as the latest sign that the market is bound for a correction. By measuring 52-week highs and lows, some believe that the omen is the best way to predict a sharp sell-off in the near future. The omen "works" because it signals investors' inability to determine the direction of the market, thereby sending some stocks to new highs and others to new lows.

But with every stock market prediction, there's one truth: It's not always correct. The latest cache of Hindenburg omens occurred in late May -- and the Dow has moved 2% higher since then.

Legal demons 
It looks like more trouble for the banking giant
JPMorgan (NYSE: JPM  ) , as the FBI is now investigating the bank's London Whale trading scandal, as well as whether the bank should have warned authorities of its suspicions of Bernie Madoff's Ponzi scheme. Just the latest governmental entity to join the pack, as the Securities and Exchange Commission, Department of Justice, and New York attorney general's office are already on the scene, the FBI investigation could lead to fines and a reprimand.

Bank of America (NYSE: BAC  ) is also in the process of being investigated by the SEC and DOJ over its sale of $850 million in mortgage-backed securities. Though the broadening story of JPMorgan's legal troubles has somewhat overshadowed B of A's, the Charlotte-based bank is sure to make the headlines as new information about the investigations breaks. Investors should take the news in stride, as the bank has battled with various legal troubles ever since the financial crisis -- and it's still able to make positive strides forward in both profitability and corporate strategy.

Outside the Dow, Wells Fargo (NYSE: WFC  ) got some good news on the legal front last week when a Minnesotan jury found the bank not guilty of misleading investors in its securities lending program. The bank had been accused of misrepresenting the risk associated with its program, which led to investors losing millions. Wells faces several other cases on the same topic, but with the latest judgement, it's 1-1 out of the first two suits to be tried.

Legal matters are just one reason that investors are still shying away from the nation's banks as investment opportunities. And with some uncertainty in the overall market, it's no surprise that many investors are still terrified about investing in big banking stocks after the crash. But the sector has one notable standout. In a sea of mismanaged and dangerous peers, it rises above the rest as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.


Read/Post Comments (2) | Recommend This Article (3)

Comments from our Foolish Readers

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 August 12, 2013, at 2:24 PM, arrogantone wrote:

    With the ever present demon of a sickly world reserve currency supporting the US Treasury; if I could I would trade my house for gold. The debasement known as QE is akin to Puff the Magic Dragon without the fire to ignite.

    Printing paper based on the premise that your nations debts can be accommodated by printing more money without any real basis or backing is a fools errand.

    So, the market of IT and Banking, mixed with a few commodities are fun for the Hampton Pickers...they deal nothing for the minions of the interior. The fix is simple on paper. Dump corporate taxes to 1 or 3%, bring the Trillions back home and all will be well, Walmart will fade and your neighborhood Hardware and Appliance Mart will be poised for the next wave of optimistic Homeboys and girls dreaming of a Home, car, kids and decent schools...like I said, simple on paper...God help us and bless America..aj on the prairie.

  • Report this Comment On August 12, 2013, at 2:47 PM, KUBLOTNIK wrote:

    i remember the week after 9/11 when the market reopened. it had been up to 11,000 and then fell in a few hours to 8,000. every one was in a panic. on one of the afternoon business shows the host was talking with a wall street analyst . he said that it was OUR OWN FAULT. when asked why, he said that WE WERE SPECULATING. pushing the price and taking our cut off the top. SPECULATION, NOT INVESTING. that is what happened in 1987,and 1929, when the price per share of GE was going for over 1,000$ . you know there is going to be A CORRECTION. it's just a matter of time .

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2591037, ~/Articles/ArticleHandler.aspx, 10/23/2014 2:22:14 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement