Is the Dow's Drop a Bad Omen?

Is it time to get worried about a market correction? The broad market is dropping today, essentially erasing a week's worth of small gains. Investors are starting to wonder whether this is just the market catching its breath, or is the second down week of the year a sign that the market will see a correction before continuing its ascent?

Before we jump into the day's events and try to answer that question, let's see how the three largest indexes are faring so far.


Gain / Loss

Gain / Loss %

Ending Value

Dow Jones Industrial Average (INDEX: ^DJI) (136.99)(1.06%)12,753.47
Nasdaq (INDEX: ^IXIC) (25.20)(0.86%)2,902.03
S&P 500 (INDEX: ^GSPC) (12.49)(0.92%)1,339.46

Source: Yahoo! Finance.

All three indexes are solidly in the red, with the Nasdaq declining 0.86%, making it the default winner of the three, while the Dow's 1.06% drop marks the worst performance of the day. All 30 of the Dow components are showing losses, with most of them down between half and one-and-a-half percentage points.

The biggest outlier in the Dow is Alcoa (NYS: AA) . The world's third largest aluminum maker is down 3.5%, as a Reuters report details how the entire industry is struggling against excess capacity, low prices, and squeezed margins that an abundance of aluminum creates. China's culpability in this should not be overlooked. The country produces roughly 40% of worldwide supply, and despite terrible economic reasons, politics in the communist country makes it difficult to shutter plants and cut jobs.

One top performing stock is up on decidedly more micro news. Cobalt Energy (NYS: CIE) just reported excellent well test results off the coast of Angola, and shares have been bid up by more than a third to $32.50. The self-described "exceptional results" show a highly productive well that's producing 20,000 barrels of oil equivalent per day. Cobalt still has no current production and thus no revenue, so every step closer to earning that first dollar for the $12.5 billion company is an important one for the business and investors.

So, with stalling Greece negotiations and increased volatility, is a near unprecedented run of quiet success coming to an end? Not likely. Greece and the EU will come to a successful resolution because European leaders know they can't let the Mediterranean country fail. Meanwhile, at home, the U.S. economy is showing strength, and if you are into technical indicators, they continue to point upward. Considering January's historic run, a little pullback is not a bad thing.

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At the time this article was published David Williamson holds no position in any company mentioned. Click here to see his holdings and a short bio. 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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