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Stock futures find economic data friendly

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Fourth quarter productivity was revised higher to 5.2% from the previously reported 3.5%, and came in higher than the 4.6% level that economists were expecting. This final Q4 productivity number is at its best level since the second quarter of 2000. Output was up 1.2% as hours fell 3.3%. Unit labor costs fell 2.7%. Manufacturing productivity, up 4.1%, was also at its best level since the second quarter of 2000. For all of 2001, U.S. nonfarm productivity rose 1.9%, the weakest reading in six year, but still rather strong considering the recession.

Initial claims for unemployment fell 5,000 to 376,000, which was inline with consensus estimates of 374,000.

Both pieces of economic data have had a marginally bullish impact on stock futures, which finds S&P futures trading up 4 points at 1,166. NASDAQ futures are higher by 15.5 points at 1,528 and Dow futures are up 40 points at 10,610.

Fair value for the S&P 500 today is $3.02. HL Camp & Company has their computers set for program buying at $4.54 and set for program selling at $1.42. Fair value for the NASDAQ-100 today is $10.00.

General Electric back in the spotlight

My e-mail was full with subscribers commenting on General Electric's break above its 200-day moving average. Some subscriber's remembered past commentary from early November of how I was thinking that General Electric (GE) may have held the key for broader market bullishness.

While I didn't "hide the key and forget it" the stock hasn't really shown up on my radar screen. But that doesn't mean it shouldn't have. This stock traded right down to a retracement support we have had in place for months, traded big volume (something about accounting concerns?) and has rebounded nicely right back to a level of retracement where it found willing sellers back in November and again in late December of last year.

While I'm not looking to trade the stock here (thinking $34.75 was a gift, and $39 is good entry on pullback) I am envious of bulls that do have a position in the stock. A longer-term bull should take a look at 1/2 bullish position on a trade at $42 (will discuss later.)

For those of us that don't have a position in shares of General Electric (GE) this is a stock worth monitoring. As I review past thoughts/commentary, I was a willing seller for a small loss after bullish entry at $40 and began "rethinking" GE. My thought process turned from "GE is a key stock to monitor/trade bullish based on a U.S economic recovery" to that of "GE is a key stock to monitor/trade based on a GLOBAL economic recovery." The operative difference being U.S. versus GLOBAL.

General Electric Chart - Daily Interval

A break above the $41.86 level would be something that GE has NOT been able to accomplish since just prior to the terrorist attacks last year. I marked the spike in volume on the sharp decline just after the terrorist attacks from $28.50-$38.50 and then another spike just recently that came in the wake of "accounting concerns" when fellow conglomerate Tyco Intl. (NYSE:TYC) was being taken apart on accounting concerns.

While resistance is still yet to be broken based on retracement at $41.86 and downward trend dating clear back to October of 2000 will be formidable, shares of GE are at a level that should be monitored.

The S&P 500 Index (SPX.X) 1,162 is also trading near the 1,175 level that served as formidable resistance back in early December and then again in early January. I would think that for the S&P 500 Index (SPX.X) to be able to make a break above the 1,175 to 1,180 level, it is going to need some help. Help that may be found from General Electric (GE).

The higher lows on BIG volume that came during periods of "concern" and "bad news" is actually starting to play out as rather bullish. That is if you believe that "all the bad news comes out at the bottom."

General Electric Chart - $1 box

As I was drawing up some comments on the point/figure chart of GE, the more bullish this stock looks. I forgot the powerful move that GE made back in April of last year off of a triple-top buy signal. While the stock didn't gain 28.7% in 6.8 months, the impressive 23% gain in 1.5 months gets my attention.

Add to that the "sneaky" looking pullback to what could eventually become the bullish support trend at $35, which correlates so well with our retracement, and I begin to think that the MARKET may have "known" something about the future and the prospects for General Electric (GE) going forward.

Hmmmm... the September $42.50 GE calls (GEIV) are offered $3.00 and that buys me about 6 months (next call out is January). If the stock were to gain anywhere close to Professor Davis' findings of 28.7%, then from $42, that would be to about $54.05. If that price were achieved ($54) prior to a September expiration, then the September $42.50 should be bid about $11.50. Is it worth risking $3 to potentially make $11.50 over the next 6 months?

Only you can answer that question, but may also serve as a measure to weigh other risk/reward trades against.

Options traders! Think about this. If you were to buy 100 shares of GE at $42 (1 call option contract), then where would your stop be? If you're going from the bar chart, then a stop might be placed below retracement support of $39.15. From last night's close of $41.55, you'd be risking roughly $2.55 ($41.55 to $39). With that said, do I really need a stop on a $3 call option? Only if you OVERLEVERAGE! Don't OVERLEVERAGE!

Jeff Bailey
Senior Market Technician
Option Investor

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