It’s Only One Man’s Opinion
Legendary stock market technician Tom McClellan released a note this week on the subject of the historical relationship between the stock price of General Electric and the U.S. equity markets as a whole, and the news wasn’t good.
Historically, the price of General Electric and a broader U.S. benchmark such as the Dow Jones Industrial Average have moved in lock-step with each other as shown in the graphic below.
Up until this spring, the two had followed that general historical relationship. Since then, however, GE has underperformed quite significantly.
Why is this concerning? Because according to McClellan, “The basic idea is that when the DJIA and such a major component as GE disagree, it is usually GE that ends up being right about where both are headed.”
The chart below, from FactSet and Marketwatch.com, shows the dramatic divergence.
So, here’s some more information on this:
There are 30 stocks in the Dow and there are 7 of them that have a technical ranking of zero or 1 when you look at the technical research I trust. And this ranking methodology is from 0 – 1 – 2 – 3 – 4 – 5. The higher the better.
So, there are 23 stocks ranking 2 or higher and those are the ones moving the DJIA at this point in time. It’s always a different group.
Therefore my take away from Mr. McClellan’s point is that it’s really not important this time.
I’m ignoring this, but it’s up to you to make your own mind.