Filed Under:
Tickers in this Article: CVX, AA, GM, F
Twenty-nine out of 30 stocks on the Dow Jones Industrial Average (DJIA) finished in positive territory October 13 as a combination of investor confidence and low stock prices of the Dow's brand names sent the index up 936 points. A sustained rally will require continued cooperation of global banking authorities and a feeling of measurable risk for investors waiting on the sidelines. A closer look at three of the Dow's top movers of the day reveals that some stocks are simply riding the upward wave while others offer genuine opportunities to consider. (For more on the DJIA, read A Market By Any Other Name.)

GM: Possible Merger Talk News
Fresh off a recent 58-year low, General Motors (NYSE:GM) led all Dow components, rising 33.13%. GM's upward move appears to be a pure reversal of downward momentum brought on by news of a possible merger with Ford Motor Co. (NYSE:F) or Chrysler. Ford is not a Dow component, but its shares did close up 20.1%. Combining with either of the two struggling U.S. auto manufacturers may possibly lead to cost savings, but the lack of new car buyers and the potential for additional layoffs are not strong signals of recovery. GM's upswing appears to be due more to wave riding and unconfirmed merger talk than a legitimate move brought on by positive market forces.

Aluminum's Weakening Demand
(NYSE:AA), one of the world's largest producers of aluminum, recently cited lack of consistent energy and low aluminum costs as a reason for a new round of layoffs from a smelting operation in Rockdale, Texas. Despite the negative news of contraction and job loss, Alcoa closed up 22.84% for the day riding the market momentum. With the auto industry being one of the largest users of aluminum, the downturn in new car buyers also affects the demand for lightweight steel replacement.

China is also a driver of aluminum prices, and with an apparent slowdown in its economy, aluminum demand appears to be waning. Weak aluminum prices and forecasts of slackening demand suggest the upswing for Alcoa is temporary. (To learn more about demand, check out the Demand and Supply section of our Economics Basics Tutorial.)

Relaxed Oil Demand
(NYSE:CVX), one of the preeminent oil and gas companies with roots tracing back to the breakup of John D. Rockefeller's Standard Oil Company, was up 20.85% for the day. Oil companies like Chevron benefited previously as oil prices worked their way up as high as $147 a barrel, driving record profits. Strong profits and oil prices pushed the oil stock upward, but as oil prices have fallen below $84 a barrel, oil stock prices have fallen in recent months. Since oil prices are subject to supply-and-demand shocks that can be affected by OPEC decisions, political posturing and military conflict, Chevron has the best opportunity of the three mentioned to sustain its upward momentum over time.

Final Thoughts
Given the volatility in the market, only investors with a minimum three-year time horizon should consider a dollar-cost-averaging approach to invest in stocks where sustainability is most likely to exist.

comments powered by Disqus

Trading Center