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Thursday, August 17, 2017 4:12:06 PM
Breakdown between Dow, S&P 500 and GE sends an ominous stock-market signal
By MarketWatch | August 17, 2017
GE is down 17% since April while the Dow is up 7%
A bearish breakdown is playing out between the broader U.S. equity benchmarks and General Electric, a key component of the Dow and one of the most storied U.S. companies.
Market technician Tom McClellan pointed out in a late-Wednesday note that when the relationship between General Electric Co. GE, -1.39% valued at about $220 billion, and the Dow Jones Industrial Average DJIA, -1.24% where it is among one of 30 components, erodes, it is usually bad news for the broader market.
Read: Russell 2000 falls below 200-day moving average for first time in 14 months
As the chart below (with the Dow in blue and GE in red) shows over a roughly two-year period, the pair tends to move in lockstep, exhibiting what is referred to as a positive correlation—moving in the same direction at the same time.
The FactSet chart above shows that on April 20, GE began to diverge from the Dow. General Electric’s shares have declined by more than 17% since that point, while the Dow has gained 7% since late April. The broader market S&P 500 index SPX, -1.54% has climbed 4.8% over that period too, and the Nasdaq Composite Index COMP, -1.94% has added 7.2%.
“The basic idea is that when the DJIA and its component GE disagree, it is usually GE that ends up being right about where both are headed,” wrote McClellan.
It is worth noting that GE has been facing a variety of pressures, including the planned exit of longtime CEO Jeff Immelt, who is stepping aside in favor of John Flannery. GE has been among the Dow’s, and the broader market’s, biggest underperformers. Perhaps adding to its troubles, or a sign of them, Warren Buffett’s Berkshire Hathaway Inc. BRK.A, -0.42% BRK.B, -0.59% recently dumped its shares in the company, which some may read as a sign of fading confidence in the outlook for the company.
It turns out that GE’s relationship with the S&P 500 also is showing strains, as the following one-year chart shows, with the S&P 500 in green:
A slightly longer two-year period illustrates the S&P 500’s positive correlation:
All that said, McClellan acknowledges that this isn’t the first time he has pointed out such a deterioration, only to have the Dow and S&P 500 continue its march higher. McClellan said the GE -Dow connection was pointed out to him by the late Larry Katz, a well-known technical analyst.
But it is possible that the breakdown doesn’t work this time. For now, the relationship remains one of a number of reasons some investors are calling for caution as equities scale dizzying heights.
http://www.marketwatch.com/story/breakdown-between-dow-sp-500-and-ge-sends-an-ominous-stock-market-signal-2017-08-17
• DiscoverGold
By MarketWatch | August 17, 2017
GE is down 17% since April while the Dow is up 7%
A bearish breakdown is playing out between the broader U.S. equity benchmarks and General Electric, a key component of the Dow and one of the most storied U.S. companies.
Market technician Tom McClellan pointed out in a late-Wednesday note that when the relationship between General Electric Co. GE, -1.39% valued at about $220 billion, and the Dow Jones Industrial Average DJIA, -1.24% where it is among one of 30 components, erodes, it is usually bad news for the broader market.
Read: Russell 2000 falls below 200-day moving average for first time in 14 months
As the chart below (with the Dow in blue and GE in red) shows over a roughly two-year period, the pair tends to move in lockstep, exhibiting what is referred to as a positive correlation—moving in the same direction at the same time.
The FactSet chart above shows that on April 20, GE began to diverge from the Dow. General Electric’s shares have declined by more than 17% since that point, while the Dow has gained 7% since late April. The broader market S&P 500 index SPX, -1.54% has climbed 4.8% over that period too, and the Nasdaq Composite Index COMP, -1.94% has added 7.2%.
“The basic idea is that when the DJIA and its component GE disagree, it is usually GE that ends up being right about where both are headed,” wrote McClellan.
It is worth noting that GE has been facing a variety of pressures, including the planned exit of longtime CEO Jeff Immelt, who is stepping aside in favor of John Flannery. GE has been among the Dow’s, and the broader market’s, biggest underperformers. Perhaps adding to its troubles, or a sign of them, Warren Buffett’s Berkshire Hathaway Inc. BRK.A, -0.42% BRK.B, -0.59% recently dumped its shares in the company, which some may read as a sign of fading confidence in the outlook for the company.
It turns out that GE’s relationship with the S&P 500 also is showing strains, as the following one-year chart shows, with the S&P 500 in green:
A slightly longer two-year period illustrates the S&P 500’s positive correlation:
All that said, McClellan acknowledges that this isn’t the first time he has pointed out such a deterioration, only to have the Dow and S&P 500 continue its march higher. McClellan said the GE -Dow connection was pointed out to him by the late Larry Katz, a well-known technical analyst.
But it is possible that the breakdown doesn’t work this time. For now, the relationship remains one of a number of reasons some investors are calling for caution as equities scale dizzying heights.
http://www.marketwatch.com/story/breakdown-between-dow-sp-500-and-ge-sends-an-ominous-stock-market-signal-2017-08-17
• DiscoverGold
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