A Dow Dud Clears the Way for a New Trade

Tech stocks are joining the party.

After a quiet start the week, the Nasdaq Composite jumped ahead to lead the major averages higher Wednesday afternoon. The FANGs took control as the Nasdaq doubled up the performance of the S&P 500 by the afternoon bell.

Netflix (NASDAQ:NFLX) posted new all-time highs following a strong afternoon rally. Amazon.com (NASDAQ:AMZN) shot above this week’s narrow trading range to close above $1,600. Facebook (NADSAQ:FB) also had a strong day as it continues to repair the damage caused by its data breach scandal.

Yesterday’s strong action from Big Tech helped trigger a new trade off our watch list. I’ll get to the details in just a minute. But first, we have to deal with a minor disaster tearing down one of our newest plays…

An impressive comeback move in shares of General Electric (NYSE:GE) triggered a new trade earlier this week. Industrial stocks were coming back to life as trade war fears dissipated. GE stock had dropped more than 50% during its 2017 swoon. But shares had bottomed out and finally flashed the breakout we were waiting for to start the trading week.

But it didn’t take long for GE to retake its title of the most hated blue chip on the market.

CEO John Flannery stirred the pot during an industry conference yesterday. He addressed the “deliberate” pace of GE’s turnaround efforts, which caused the stock to begin to slide.

“What may also be worrying investors, however, is that when Flannery was asked whether he could ‘stand behind’ the current annual dividend rate of 48 cents a share, he was less than definitive,” MarketWatch reports.

In other words, Flannery didn’t promise GE’s dividend would escape unscathed from the company’s turnaround efforts. That was enough to send the bulls packing. By the closing bell, the stock had cratered more than 7%.

Comeback

It’s frustrating to see a breakout like this one begin to fall apart — especially since we’ve been stalking this stock for almost a month. When we jumped into this stock earlier this week, I told you how I wasn’t too happy about the crazy media attention the breakout was receiving. After yesterday’s action, we can bet that a lot of these new bulls have fled the stock.

With that in mind, let’s see if GE can shake off this setback and find support at these levels. Comeback moves are usually messy. This one’s no exception. I know yesterday’s drop stings. But the market might reward our patience if we hang in there to see what develops.

Meanwhile, another Dow component is firing off a fresh buy signal.

On Monday, we discussed how Microsoft Corp. (NASDAQ:MSFT) just purchased artificial intelligence startup Semantic Machines, thrusting the blue chip tech giant into the voice wars.

While we’re not sure if Microsoft will successfully compete with Amazon and its Alexa software in this space, the stock is reacting favorably. Microsoft shares consolidated perfectly over the past two months, shaking off market weakness and pushing toward 2018 highs. After opening lower yesterday, the stock stormed higher in the final hour of trading to close at new highs.

I said on Monday we shouldn’t sleep on Microsoft. Next stop $100…and beyond!

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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