The Market’s Worst Stock Wakes Up!
Industrial stocks are breaking out!
As trade war fears evaporate, investors are piling back into the industrials names they were so eager to sell just a few short weeks ago.
Concerns of an ongoing trade spat with China and the dollar’s furious rally were taking their toll on the sector. The Industrial Select Sector SPDR (NYSE:XLI) broke down in late April, only to capitulate earlier this month. XLI broke below its February correction lows to prices not seen since late November.
Panicked sellers were expecting a deeper drawdown. After all, these stocks had been dead money walking for months. Some of the most recognizable industrial giants on Wall Street were down double-digits on the year as the major averages found higher lows. No one wanted these stocks. The situation looked downright hopeless.
That’s when the buying started…
You can give credit to the Trump administration for squashing the trade spat with China for the boost (even if it’s temporary). But as price shows, the industrial sector began its comeback move nearly three weeks before the trade war news hit the wire. XLI is now topping its April highs, placing the ETF firming in the green for the year and within striking distance of its January highs. So much for that big, scary breakdown. Buyers stepped in right when the sector needed the most support.
Now we’re beginning to see some of these forgotten stocks break out in a big way.
In fact, the biggest breakout among the high-profile industrial names belongs to one of the most hated blue chips on the market: General Electric (NYSE:GE).
Our little lesson on GE’s recent history won’t take long. The storied American mega-cap unceremoniously decoupled from the bull market at the start of 2017 as conglomerates fell out of favor in a market dominated by elite Silicon Valley tech stocks. Just one year later, GE stock had dropped more than 50%.
But GE shares started to bottom out in April. After improving for the better part of the past four weeks, we were finally treated to a significant breakout Monday morning. The biggest drag on the Dow is finally back in action!
General Electric confirmed yesterday it is merging the transportation section of its business with Wabtec Corp. in a deal valued at more than $11 billion. Analysts and investors have been looking for GE to streamline its operations to improve performance, so it’s no surprise they’re latching onto this news as the bullish spark for this week’s breakout move.
Catalyst or no catalyst, we’re seeing more than a few positive media reports on GE to begin the trading week as sentiment suddenly improves. Investors are flipping bullish on this stock at a furious rate.
I like how it gapped higher Monday morning to kick off its big breakout. But I’m not too happy about the crazy media attention the breakout is receiving — I’d much rather fly under the radar until the stock hit our primary profit target.
Despite the attention, we’re dealing with a clean breakout and well-defined support. GE’s first meaningful leg higher after a brutal 2017 begins now.