Market Recap: GE, We Bring Bad Things to Light

Here’s the Readers Digest version of last week in review. GE warns huge, Oil continues to climb, Financials are imploding, and earnings are on tap. Now on to the details...

Early on Friday morning I got wind of the Jeff Immelt (CEO of General Electric) interview on CNBC, where he tried to temper GE’s report of poor earnings and guidance by saying the first quarter results were “just a bump in the road.” But analysts were universally stunned, because GE has a long time reputation for providing conservative guidance and like clockwork, meets or exceeds that guidance. Upon hearing the news, I immediately issued a post to the AAPL Yahoo message board to take head in this report and recommended a predominate cash position. GE (-4.70) dropped a whopping 12.79% on Friday, and sent shutters across all the markets and wiped out recent gains made by AAPL (-7.41, -4.79%).

Many investors on the AAPL message boards have shrugged off this event, downplaying the report because the poor performance was largely due to GE’s sprawling financial services operation, and not so much by other GE divisions. But the consensus among industry analysts is universal, and that’s what really matters. At worst, most analysts expected the low end of earnings to be in the 50-53 cents per share range. No one expected 43 cents a share, and a 6 percent decline in profits.

Even Immelt was taken back by the poor performance, that mostly occurred in the last two weeks of March, and he linked it in part to the Bear Stearns debacle. He also attributed the bad news to their healthcare division and the slowing economy. On the bright side of the GE report, they have had stellar performance from their foreign subsidiaries, with 38 percent growth.

While I’m reporting bad news, I might as well pile it on with financials and oil. The downtrend continues for financials, as some of the stronger players, pierce their support lines, such as Wachovia (WB) and Wells Fargo (WFC).

And oil continues to rise, hitting a record $112 per barrel intr-day, and causing prices at the pump to soar across the country. This puts huge pressure on inflation concerns, and continues the squeeze on consumer sentiment, which was at a 26 year low. Hasn't been that low since the Reagan administration.

A possible near-term bright spot, are the negative divergences setting up in oil, signifying a possible retest of strong support at the $98-$100 per barrel range. Such a retest would relieve some pressure.

Apple is going to have to put on some kind of magic show this coming quarter to get people motivated to spend their discretionary monies. Let’s hope that Apples numbers don’t get swept out from under them late in Q1 like GE’s.

So, where do we go from here? I’ve been pointing to a bullish inverse head and shoulder patterns forming on the Naz and S&P. But with Friday’s action, we need to take a fresh look at things and re-evaluate, to see if sentiment has changed. The fact that strong support in the 20 and 50 day moving averages were compromised on Friday puts me on the fence, as to whether we can fulfill the head and shoulder bullish pattern, or if we are going to fall back to the next support levels of 1270.

With the bad news from GE, oil, and financials, it would not surprise me if we created some breathing room, and headed south a bit, to prepare for a backtest of the 20/50 MAs. And my suspicion is that backtest will give us a bit of trouble, before moving higher. Normally, an impulsive move down is not what you want to see on the right shoulder of an inverse head and shoulder pattern. What would have been preferable is to continue to shake off the remaining sellers, like we were doing, and clear the way for a breakout through the neckline. But now I fear that the Bears are going to be rejuvenated some. What we are left with is a quagmire, although a possible descending triangle forming might hold some hope, but that might not play out for some time.

So my best advice is to remain in cash, until we can make some head way through the new resistance. Like I always say, the most important thing in investing is capital preservation first, good profits second. And sitting in cash can be an enviable position. Besides, you want that cash to work for you when the time is right. Now, I do have some long alerts out there, in KBR and AG. Both weather the storm quite well. But I’m not going to invest a lot of time in them if they show any weakness going forward. Better to be safe than sorry.

-zach bass