General Electric, Boeing and the Bet on Blue Chips
When markets began to roll over in late February, one of the areas to become oversold fastest was the small cap sector, represented by the Russell 2000 Index. By comparison, the blue chip stocks of the Dow industrials continued higher, albeit sluggishly, only turning to the negative in recent days after the small caps of the Russell 2000 (and the transports of the Dow Jones Transportation Average, for that matter) had closed in oversold territory for multiple sessions.
While this does not mean that small caps are any better or worse an investment, it does mean that traders and active investors who wanted exposure to some of the markets bigger and better branded stocks may soon have the best opportunity to do so in many weeks.
Shares of General Electric (NYSE: GE), for instance, have closed lower for two days in a row, seven out of the last nine, and are again trading in technically oversold territory above the 200-day moving average (note GE was last oversold exactly one week ago at the end of a four-day decline). Off by more than half a percent, the stock continues to trade with neutral ratings of 6 out of 10, and a short-term, positive edge of under half a percent.
Sharing a 6 out of 10 “neutral” rating with General Electric, shares of Boeing (NYSE: BA) have finished lower for two days in a row after pulling back by more than 1% on the first trading day of the week. Now lower for five out of the last six sessions, BA has sold off to new, two-week lows and is again technically oversold. Note that the last time Boeing experienced a multi-day sell-off to new, short-term, oversold lows in late January, the stock closed higher for the three out of the next four sessions, gaining nearly 3%.
Boeing has a positive edge of just over a quarter of a percent in the short-term.
Stocks like General Electric and Boeing tend to be much less volatile that other stocks, which means that the relatively modest ratings and edges in these stocks could mask a potential for significant movement. Additionally, where a modest, one-point upgrade may signify little difference in a stock more accustomed to dramatic ratings upgrades and downgrades, in a stock like General Electric or Boeing, even an upgrade to 7 to 10, putting the stock at the upper end of the neutral category, could signify a significant shift in the stock’s prospects over the next few days.
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David Penn is Editor in Chief of TradingMarkets.com