Today’s bellwether stocks are different from those of the ’80s or ’90s, but they still offer insights into the mood of the market. Right now, bellwethers are throwing off warnings despite Wednesday’s rally following the Federal Reserve’s promise of patience before raising interest rates.
 
In the 1960s, the phrase “As goes General Motors so goes the nation” was an economic mainstay. For technical analysts, General Electric was often a favorite leading indicator on the charts. If GE started to weaken, a market correction often followed.
 
Over the years, the bellwethers have changed. Google is an obvious choice today as it is the premier technology company, which many liken to a high-tech venture capital fund. On the charts, Google has had a rough two months, falling from a mid-October high of $568, in round numbers) to a low just under $500 (it traded at $505 Wednesday). Indeed, it has been underperforming the market most of the year (see Chart 1).

Chart 1

Google

The real problem emerges on long-term charts. A triangle or coiling pattern in progress since late last year broke to the downside, and the stock set a 52-week low. Clearly, energy stocks are not the only ones plumbing the depths of their ranges, and this has worrisome implications for the market.
 
Wednesday morning, FedEx reported fiscal second-quarter profit that missed analyst estimates, and its stock broke down (see Chart 2). While it did benefit from falling fuel prices, other factors caused the miss.

Chart 2

FedEx

I consider this to be a bellwether stock because as a shipping stock it gives us a direct read on commerce and economic activity. On the charts, FedEx had led the market higher for the past two years, so with Wednesday’s sharp drop we have a leader that is no longer leading. We can argue that the long-term rising trend remains intact – and it’s possible to make a case for FedEx stock based on fundamentals – but by leaving a gap on the charts as it opened, it sent a powerful bearish signal to chart watchers.
 
Although it seems outdated, I still consider Freeport-McMoRan to be a bellwether. This copper and gold miner, as expected, got hurt as gold prices tumbled this year. However, it is its copper component that I find to be more important. Copper is considered to be a tell for the economy, so much so that it is dubbed “Doctor Copper,” the metal with a Ph.D. in economics. It is used everywhere from wires to pipes so if demand for copper slumps, it is a good bet that the economy is having its troubles.
 
Freeport-McMoRan’s stock has been cut in half since the summertime. It has also moved below chart support in effect since 2010, and that is a very big – and bearish – technical signal (see Chart 3).

Chart 3

Freeport-McMoRan


To be sure, the stock is extremely oversold by many measures, leaving the door open for a rebound rally. The technical damage, however, is extensive and likely to require plenty of time to heal.
 
The list of bellwethers is, of course, subjective. Apple is clearly an important company due to its sheer size and reach, but it has not been a great predictor of overall stock market action. Caterpillar is an important stock in terms of indicating construction and mining health, but has been moving more or less sideways in a wide range for several years. Facebook is the top social media stock, but it is a juvenile in terms of market history, and therefore not a proven market indicator.
 
Banking giant JPMorgan Chase, a true survivor of the 2008 financial crisis, is arguably a bellwether candidate as well. But given that the market rallied for several years before the bank finally broke out, it is hardly a true bellwether. We can say the same thing about retail giant Wal-Mart Stores.
 
Whether the market follows through on its post-Fed rally remains to be seen. The point is that several stocks that seem to be very important to the economy and to the market are not doing well. They may hold the key to the market’s performance next year as the effects of quantitative easing, the energy debacle, and the social media initial-public-offering frenzy fade from the headlines.