NEW YORK (MarketWatch) — The breakout rally in General Electric’s stock last week has made some bullish chart watchers giddy, because although the industrial conglomerate has lost a lot of its luster since the Great Recession, many still consider it an important barometer of future market performance.
For the last five years, GE’s stock
has traded nearly in lock-step with the Dow Jones Industrial Average, of which it has been a component since November 1907. The correlation coefficient since November 2009 has been 0.96, where 1.00 would indicate an exact match.
Tom McClellan, the author of the widely-followed investor newsletter The McClellan Market Report, said that history showed that the rare times GE’s stock and the Dow disagreed, like they had been doing for the past several months, “it is usually GE that ends up being right about where both are headed.”
That had been a key concern among many bullish chart watchers, because as the Dow has posted several record highs since the summer, GE’s stock has kept peaking at lower and lower levels. That all changed last week.
GE’s stock broke through a downward-sloping trendline that had defined its bearish trend the last several months. Greywolf Execution Partners’ chief technical analyst Mark Newton said the breakout rally “marks at least a short-term positive development by climbing above an area of resistance that had marked highs in this chart since June.”
As technicians like to say, the end of a downtrend tends to mark the start of a new uptrend. And when GE’s stock is rising, the broader stock market usually does the same.
Newton feels the first upside target for GE is $27, or about 2.1% above current levels. It would have to rise 3.8% to close above the June 9 high of $27.44.
The stock was up 0.1% after midmorning trade Monday. It has run up 9% since GE reported better-than-expected third-quarter earnings on Oct. 17. It may not be a coincidence that the Dow has also gained 9% over the same time.