by Johnson Research Group | May 30, 2013 12:28 pm
Companies don’t get too much larger than General Electric (GE), so when its stock appears to be setting up for a move higher, you should take notice.
And right now, GE’s recent activity has us thinking it’ll be a potential market leader for the remainder of 2013.
The international conglomerate has made strides to improve its fundamental situation after the shake-up resulting from its financing activity during the financial crisis. GE shares are now meeting or beating analysts’ earnings expectations for the last year.
But while the fundamentals are positive, it’s the “trade drivers” that make General Electric a bullish standout at this juncture.
Click to Enlarge From a technical perspective, GE shares have been lagging the market during the past three months; the stock has appreciated by 1.8% vs. the S&P 500’s return of 9.3%. This disparity came as GE ran lower to test its 200-day moving average in early May following its earnings announcement despite beating on both the top and bottom lines.
Less than a month later, General Electric is now charging back to its March highs and threatening to break through the $24 level.
The thing is … there is more pessimism toward the stock now than in March, suggesting that a continued break higher could start a bandwagon rally, as bearish investors will start capitulating to this bullish case.
An example of the pessimism toward GE can be seen in the short interest activity. Last week, short sellers were reported to have more than 92 million shares sold short as bets against the stock advanced higher. This makes General Electric the third most-shorted company in the S&P 100 — Intel (INTC) is the highest, but we’ll talk about that next week. The short interest situation is interesting to us because GE’s current short ratio rivals levels seen in August 2012, just before the stock launched a 15% rally, in part fueled by short covering.
Traders will want to watch a break of the $24 level as an indication that GE is ready to break through and help lead the market higher through the summer months. We expect General Electric will trade to the $27 level or higher before the end of summer.
As if it was needed, the cherry on top of this technical trade is GE’s 3.2% dividend yield, making it an attractive alternative for income investors.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
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