GE Brings One Good Thing to Life ~ The Risk Averse Alert

Saturday, March 21, 2009

GE Brings One Good Thing to Life

Occasionally in the course of developing my analysis I will look at charts of various widely-held companies, and refine my sense of broad market prospects from the framework of what appears a likely course for select, individual issues.

Before I published yesterday's commentary I took a gander at General Electric (NYSE:GE).

company chart (GE)

What a disaster. One's first reaction cannot help but see trouble ahead for GE (and by extension the broad market). But then again, GE is trading in the range where it stood in 1994 ... much like broad market indexes might over the next few years. It's possible GE is but leading the way, and not necessarily slated for further unraveling.

Another takeaway is GE, being a widely-held issue, might have been caught in the crossfire of a financial system starved for capital. In other words, a part of GE's recent troubles could originate with larger, systemic issues that (not coincidentally) find GE's Capital unit caught in the middle. Were institutions needing ready capital forced to sell highly liquid shares of GE out of necessity, rather than any profound loss of confidence in the company's future?

I could not say. I have no bead on GE's long-term fortune. Being our global, securities-based financial system technically is insolvent, with no hope of being bailed out or resuscitated, it's not impossible imaging GE remaining an industrial company, but its equity driven to zero by its Capital unit.

Be that as it may, GE's near-term prospects over weeks and months ahead might still be reasonably discerned. If history is any guide, the deeply oversold position to which GE's weekly RSI has descended at least indicates a bounce probably is in order.

company chart (GE)

And bounce it has ... much like last September and then again in November. The question now is whether GE already has seen the best of its present recovery. If so, what might this mean for a near-term outlook believing broad market indexes have another 15-20% higher to go before another bout of selling pressure develops?

Well, let's have a closer look at GE's performance off its November '08 bottom and contrast this with the broad market.

company chart (GE)

Take a look at Friday's post and contrast the NYSE Composite's performance with GE's from October '08 through early-January '09. GE led the broad market's advance into early December, then notably began to lag going into the New Year.

You'll see, too, GE once again is leading the broad market higher. Might another period of it lagging be in store before any broad bout of selling takes hold? This seems quite reasonable. Right now, though, there's reason to believe broad market indexes could advance another 15-20% because GE, despite its uncertain long-term outlook, has yet to show renewed, near-term distress. Pretty simple.

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