Global Rotation: Seeing the Big Picture in GE, Intel, Banks...
By Quint Tatro Sep 13, 2007 12:17 pm
If you think the appliance boom was big in the United States in the 1950's, we haven't seen anything compared to the appliance boom we will see in India, China, Africa, and the Middle East.
If I were to stick the Mona Lisa painting directly in front of your face, how would you describe it? Could you even tell what it was? Probably not, but if I slowly moved the painting back further and further, with each step it would become clearer. You would first realize that your eyes weren't starting at a white splotch, but rather a nose. Coming into focus next, you would see a set of eyes, and eventually be able to make out facial features, telling you it was a woman. Finally, you would be able to see clearly exactly what the painting was.
So often this is exactly what happens when we become engrossed in the daily movement of the financial markets. It is as if we have taken the markets and pushed them right up in front of our face and have no idea what the complete picture is telling us. If one would just take a few steps back however, they could clearly see actions taking place that would help them to make out just what is happening.
Let's start with financial stocks. I for one have fallen victim to watching the daily tick here simply because I am chomping at the bit for the long awaited squeeze play. With that being said however, when you take a step back and look at the longer term charts, you can clearly see that stocks like Goldman Sachs (GS), Citigroup (C), Bear Stearns (BSC) and Bank of America (BAC) are under distribution and in a down trend.
All of the stocks have broken character from the way they have acted over the last several years and simply taking a step back to respect this helps to bring clarity to a picture that seems to change by the day when one stares closely at each tick.
Bounce on over to some big cap technology and you see something quite different. Sure, it is easy to go through emotional swings on a daily basis when these stocks gyrate 1% or more however pulling the picture back on a stock like Intel (INTC) reveals something quite interesting.
The stock has been forming a distinct wedge since the 2002 bottom, which has become quite narrow over the last several months. In June of this year however, something changed and Intel (INTC) broke out of this wedge, going on to reach yearly highs. Argue what you will about the business model, potential liabilities or slowing computer sales, but the price action in the stock is telling us something has changed.
Or how about Cisco (CSCO) that is dancing around prices not seen for six years? Sticking your nose in the daily tick of this chart will show you nothing, but pulling back will show you that people want to own this stock and something has changed to make this so.
Finally, rather than have this become a discussion simply about a rotation from financial to technology, how about taking a look at General Electric (GE)? As with the others, the daily tick can tell you nothing but a bigger picture view shows a stock breaking above a consolidation range that it has been in since the middle of 2004 and trending higher since 2002.
Like the others, say what you will about its debt situation, its business model or management, but a picture is worth a thousand words, and this one is saying something at General Electric has changed.
So what does this tell us? Once we have pulled the picture back far enough, and can make out all the features, what do we label this magnificent piece of art? Let's call it Global Rotation. Rather than confining it to a domestic term, I believe what we are seeing is stocks reflecting something we already know and that is.
No longer does General Electric solely rely on the United States consumer for its top and bottom line, but rather relies on the world and the ever growing consumer populations of foreign countries. If you think the appliance boom was big in the United States in the 1950's, we haven't seen anything compared to the appliance boom we will see in India, China, Africa, and the Middle East.
There is no question we are a global marketplace, and unless you are competing internationally you will struggle.
So are the U.S. banks done? Are these international superpowers going to miss out as their stocks are suggesting? Heavens, no. They are simply going through an adjustment period because of their exposure to a problem created domestically. Soon it will be behind them and they will go on doing what they do best, making money hand over fist being involved in everything from international development to international mergers and acquisitions.
So who will be the real victim? Those who will be left behind during this global rotation will be those companies that do not possess international exposure, or can't possess it fast enough. Specialty retailers who rely solely on the United States will suffer, as will domestic only manufacturing and service.
When you take a step back you can clearly see that the painting says the U.S. has some problems but the rest of the world is chugging right along.
Will there be bumps in the road? Of course there will be, but when you find yourself becoming emotionally torn and can't quite make out the picture in front of your face, be sure to take a step back and let it all come into focus.
Position in INTC and GE.
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