Dow Sends More Mixed Signals

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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.

After three days of losses, investors have waited for a reason to rally, and before the bell analysts saw some optimistic data on Chinese trade and U.S. jobless claims as a catalyst for at least a brief rebound in the U.S. stock market. But after opening higher, the market dropped back as investors continued to worry about the uncertain impact that the inevitable drawdown of the Federal Reserve's "quantitative easing" will have on asset prices. By 10:45 a.m. EDT, the Dow Jones Industrials were actually down 40 points, while broader markets were essentially flat.

As we've seen on a number of occasions recently, cross-currents within the Dow give conflicting guidance about the possible future direction of the overall market. Caterpillar has climbed 1%, showing the company's heightened exposure to the Chinese economy generally and to the industrial sector of the emerging nation specifically. Yet the heavy-equipment maker seems doomed to suffer the longer-term pressures of reduced demand from the mining sector, as the prices for many metals could remain low well into the future. Despite today's gains, the stock remains near yearly lows, and it'll likely take more cyclical economic strength to create a longer-lasting rally.

Yet Intel has fallen by about 1%, following up on recent losses as investors continue to question the chip maker's ability to survive the decline of the PC industry. With Goldman Sachs having dubbed Intel one of the five most overvalued stocks in the market, citing more than 30% downside risk from current levels, shareholders have slowly but surely seen some of their share-price gains from earlier in 2013 start to erode. Short-sellers have hopped on the bearish bandwagon for Intel, making it one of the most heavily shorted stocks in the Dow. Until the company manages to establish its growth strategy going forward, Intel will likely continue to face tough reactions from investors.

Finally, cross-currents in earnings are having different impacts on stocks as well. Tesla Motors has soared 14% after announcing another surprising quarter, with vehicle sales volumes topping estimates and the company posting an operating profit. Yet Green Mountain Coffee , which also topped profit estimates and raised its guidance, has dropped 1.7% after its revenue didn't come in as high as expected. These results show two things: Momentum stocks can feed on extremely positive news and push ever higher, but when high expectations get baked into a stock, anything short of perfection can bring those share-price gains to an end. Expect these dynamics to continue so long as economic conditions stay unclear.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Green Mountain Coffee Roasters, Intel, and Tesla Motors. The Motley Fool owns shares of Intel and Tesla Motors. 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 Motley Fool has a disclosure policy.

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