The icon of the Dow during the boom years, General Electric, has had a rough time of it since the cracks began to appear in finance land. Markets had figured out that the big industrial really was, as Forbes put it, “a bank in drag.” The stock was taken to the woodshed, at one point in Feb-March 2009 reaching well down in to the single digits. Unthinkable during the reign of the celebrated CEO Jack Welch. In 2010, GE has outperformed the S&P, gaining 20%. The stock gapped up last Tuesday, putting up a strong candle on expanded volume. If the General is going to lead the market again, maybe this rally is for real.
My call for a correction last week was wrong (I could say early, but getting the timing wrong is still being wrong). The S&P was up less than 1% for the week, and down on Friday with higher volume, but up is up. Alan Brochstein has an interesting post which suggests that short covering accounts for the otherwise inexplicable leadership of the small and midcaps in the recent runup. One more piece of evidence, along with weak volume and declining market breadth, that the rally isn’t durable and is living on borrowed time. I will pat myself on the back for not being one of those shorts who got squeezed. For now, no change in allocation. Still watching for that correction.