The Dow Can't Keep These Stocks Down

The Dow Jones Industrial Average (^DJI +2.49%) tumbled 243 points yesterday, or 1.8%, as Spain continued to contract -- the fifth straight quarter it did so -- sending European markets sharply lower. Coupled with more earnings reports here at home showing not all is well, the hope for a change in fortunes seems to be evaporating.

While industrial stock United Technologies (UTX +3.07%) was able to handily beat analyst expectations, its stock still fell hard, though not as hard as Alcoa (AA +0.00%) or Caterpillar (CAT +6.15%), whose shares dropped 3% and 2%, respectively.

But not everyone was feeling the blues (though Big Blue IBM (IBM +2.17%) was down 1.6%). Some managed to record strong gains, even rising by double-digit percentages.

Resist the urge to high-five everyone in the cubicles next to you, however. Smart investors won't celebrate until they know why their stock surged, because without a fundamental basis for the bounce, these stocks could just as quickly make the return trip down.

Steel yourself for volatility
After hearing that luxury-goods makers like Burberry and Tiffany (TIF +0.00%) faced strong headwinds in China as the economy slowed there as well, you'd expect fashion plates across the board to stumble, too, but handbag maker Coach shows why it's important to be a selective stock picker. It reported strong earnings yesterday that proved its aspirational brand remained a choice of consumers abroad and here in the Unites States. China in particular drove its results higher.

The key differential between Coach and Burberry or even accessories maker Michael Kors (KORS +4.94%) is that it's handbags are typically at a much lower price point than its rivals. While Kors is moving in that direction, it's only just breaking into the Asian market while Coach has been an established presence for some time. Moreover, its stores are located not just in Tier 1 cities like Beijing and Shanghai, but further out as well, where the burgeoning middle class is still growing and finding its affordable luxury attractive.

That has been the investment thesis behind Coach in the U.S. for years, and it continues to translate well around the globe. Look for the handbag maker to continue leading the way forward from the front, and though it enjoyed a nice bounce yesterday, I don't think the run higher is done. Let me know in the comments box below if you think it can continue its streak higher.

Back from the dead
Isn't RadioShack dead yet? It should be, given its third-quarter performance, where losses continue to mount. Sure, it beat analyst expectations, but the wider $47 million loss in the quarter shows the situation isn't improving at the electronics retailer, even if Wall Street thought it was going to be worse. Expect yesterday's bounce to become today's flat tire.

I said that two weeks ago, after a Bank of America (BAC +3.15%) analyst upgraded the stock saying that shares had fallen to such a degree that it was too cheap to pass up. While the stock did fall back again, it also resumed a slow march higher, culminating in yesterday's surge. I wouldn't call RadioShack a cigar butt investment, as it probably has more than just a few puffs left in it, but it's pretty obvious we're getting down to the nub here.

The Shack has made a big bet that mobile phones can be its salvation, but as this quarter made clear, it's a bet that's not paying off as expected. Demand for Apple's (AAPL +2.77%) iPhone 5 outstripped its supply, which meant it lost customers to rivals, and the store-in-store concept it's had at Target (TGT +2.04%) is turning into a money-losing proposition, so it will probably end that project .

Phones are a lower-margin business regardless, and gross margins contracted almost 7% to 36%. With same-store sales falling as well in the quarter, customers aren't generating the same traffic. While I enjoy shopping at RadioShack for electronic exotica that you can't find elsewhere, it seems a hard business model to maintain in this environment.

Chips ahoy!
Proving the market moving trend of smartphones and tablet computers, ARM Holdings saw shares surge following a strong quarter that witnessed revenues jump 18% profits widen 29% to $0.18 per share, beating Wall Street guesses by a penny.

ARM is the leading chipmaker in mobile communications and computing, but its results were even enough to carry Intel (INTC +7.14%) higher. Although a laggard for the past few months, Intel is trying to break into the mobile market, and the robust results from ARM suggest there may be just enough business to go around . It makes the contrast with Texas Instruments  (TXN +4.14%), the largest maker of analog chips, all that more striking. TI said it anticipates its earnings report will miss expectations.