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Market & Individual Stocks - A study of Contrasting Fortunes


DarterBlue

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With the futures down solidly as I type this, I though I would share a few comments on two stocks. The first one is Grubhub, Symbol GRUB. The second is General Electric, Symbol GE. The former is a technology stock of sorts, or at least a user of modern technology; the latter is an old line industrial company, or one of the late 19th and early 20th century technology companies of its day.

Grubhub has been a leading stock during the latter stages of the current bull market. Its relative strength as measured by Investors Business Daily places it in the top 2% of of all stocks tracked in their database. Despite the fact that the overall market has exhibited weakness and a lot of volatility since the beginning of February, GRUB sits a mere $2 off its all time high and has actually gone up over 60% since the beginning of February. Should I be wrong concerning the market's direction over the next year, GRUB is a prime candidate to buy for future gains. It seems to be forming the beginning an extremely rare but bullish chart pattern referred to as a high, tight flag. Continued market choppiness over the next month may help it complete the flag portion of this pattern; while a resumption of the uptrend thereafter, may facilitate a subsequent breakout to new highs. 

General Electric has been an abysmal performer during the latter phases of the current bull market. It was challenging multi-year lows last seen in the summer of 2009 when the current bull market was in its infancy; since the weakness began in February of this year, it has continued to go south and has taken out these lows and now seems set to challenge the lows it set back in February/March 2009 before the current bull market began. Its price action has been so weak, that it may continue to decline even if the overall market rights itself and continues on to another up leg. GE is a prime candidate to short should stocks remain weak and may even be a profitable short if the bull market resumes. Its weakness is characteristic of a company in jeopardy of Chapter 11 bankruptcy. And I would not be surprised if that were where it's heading. As an aside, a friend and colleague in 2002 was assembling a list of stocks that he wanted to include in the dividend reinvestment portion of his investment strategy. He asked my opinion on: MRK, GE, SO, HD, and several others whose names I don't recall. I pretty much gave the green light on all with varying degrees of confidence except for GE which I panned. When he asked why, my response was simple, "We have prepared and analyzed financial statements for most of our working adult lives. If you tell me you can make heads or tails of GE's financial statements and notes, more power to you, as I sure as hell can't'. But, but he said, "The company has been around for over a 100 years and is a venerable industrial institution." "Yes" I said, "but that was then and this is now." 

 

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