Non-Blue Chip Stocks Settle Down
The nation’s markets in non-blue chip stocks, jerked around in recent days by the extreme volatility in the Dow Jones industrial average, lost more ground again Tuesday but not as much as they did on Monday.
The NASDAQ over-the-counter index fell 1.05 points to close at 459.93 on Tuesday, but the drop was small compared to its 6.31-point slide Monday, a day when the Dow average soared more than 88 points. The Dow closed down 18.65 points on Tuesday.
So chaotic and confusing have the markets been in recent days that, while the Dow was soaring Monday, declining issues on the New York Stock Exchange outpaced advancing ones by a margin of 975 to 749.
Though the numbers sound contradictory, market analysts say the movements are normal in times of extreme volatility, with the blue chip Dow acting as a leading indicator for markets in secondary stocks.
The Dow index moves down faster and it moves up faster in times of extreme volatility, as has been the case in the past three days, market analysts say. Smaller stocks generally trail in the Dow’s wake in the ensuing hours and days after a sense of confidence has returned to the market.
“Whenever you have sharp swings up and down, it shows first in the blue chips,” said Arnold Kaufman, editor of S&P; Outlook, a weekly investor newsletter published by Standard & Poor’s.
Blue chip stocks are big favorites of institutional investors, such as mutual funds and pension funds, which place a premium on securities that can be bought and sold easily in large volume without disrupting the market.
Some of the best-known names in corporate America make up the Dow Jones industrial average, including IBM, General Motors, Sears Roebuck and Coca-Cola. Others include Texaco, McDonald’s and Philip Morris.
Blue chip stocks also represent a safe haven for conservative small investors, who saw the values of some of America’s best-known companies beaten down Friday when the Dow lost more than 190 points. Then followed Monday’s rebound of 88 points when investors rushed to buy the stock of well-known, quality firms.
The rush to buy blue chip stocks was “a flight to safety and a flight to motherhood,” said Alfred Goldman, director of technical market analysis for A. G. Edwards & Sons, a regional stock brokerage firm in St. Louis.
But the non-blue chip stocks avoided much of the Dow’s plunge Friday and were left out of its Monday rebound. Instead, the non-blue chip stocks have simply lost ground in unequal amounts the past two days.
“They all got hit yesterday, and they’ve been hit again today,” pointed out Brad Weeks Sr., vice president of stock trading at Donaldson, Lufkin & Jenrette Securities in New York. Smaller stocks were largely left out of Monday’s upswing because there was simply too much confusion and uncertainly in the market, said Goldman at A. G. Edwards.
The most active stock on the over-the-counter market Tuesday was MCI Communications, which fell $2.625 a share to close at $42.375 even though the company released strong earnings. Analysts said, though, that revenue growth had not met expectations. More than 4.6 million MCI shares changed hands.
Overall, there was some some buying in the technology sector of the over-the-counter market, but it was not widespread. “There is some select buying, but the buyers are very, very nervous,” Joseph Mercurio, a managing director at Cantor, Fitzgerald & Co., told Dow Jones News Service.
Where the secondary markets are going in the near future is anybody’s guess. “Nobody can predict what will happen in the next few days,” S&P;’s Kaufman said. “The market is too volatile.”
Louis Navallier, an analyst in smaller stocks and newsletter editor in Lake Tahoe, thinks the markets will remain “sloppy” and volatile through the end of the year before a bull market resumes again. Come January, “it will be up, up and away again,” Navallier said.
