GENERAL ELECTRIC AND MICROSOFT ARE LATEST BIG BLUE CHIPS TO START LEADING

MICROSOFT GAPS UP 4% TO LEAD THE DOW AND NASDAQ... I've been writing lately about some of the market's largest blue chip stocks that are starting to attract new attention and exert upside market leadership. Today's two cases in point are General Electric and Microsoft. They're the two top performers in the Dow today. Because of its large size, Microsoft is also giving a boost to the Nasdaq 100. Chart 1 shows Microsoft gapping up over a point today (+4.2%) on very heavy volume. Its relative strength ratio (versus the Nasdaq) is jumping for the first time in three months. Although some or all of today's underlying gap may have to filled, it's an impressive day for the biggest stock in the Nasdaq market. The weekly bars in Chart 2 show that the stock recently bounced off chart support along its 2004/2005 highs near 27 to keep its uptrend intact. Its RS ratio (bottom of chart) bottomed last summer and appears to be turning up again. The monthly bars in Chart 3 show MSFT testing long-term resistance ranging from 31.50 to 33.14. A close over that supply zone could launch a more ambitous uptrend.

Chart 1

Chart 2

Chart 3

GENERAL ELECTRIC STARTS TO LEAD FOR A CHANGE ... General Electric is the second biggest Dow gainer today (behind Microsoft). The stock's 3.7% gain puts it at the highest level in three months (Chart 4). It's also rallying on strong volume. That's a bullish combination. To get an idea of how new upside leadership from GE is, take a look at the GE/Dow ratio (bottom of chart). The ratio has dropped steadily since the start of the year -- until today. The weekly bars in Chart 5 show the stock in a gradual uptrend since the spring of 2003. It recently bounced off a rising trendline drawn under its 2003/2006 lows. Of more interest to me is the GE/Dow relative strength ratio at the bottom of Chart 5. The ratio has been falling for nearly two years as GE as lagged behind the Dow. Notice, however, that the ratio is starting to bounce off chart support formed by ratio lows during 2003. That makes this a logical chart spot for the GE relative strength line to start rising. We've seen that same pattern with some other big blue chips that we've studied recently.

Chart 4

Chart 5

Chart 6

GE TESTS RESISTANCE BARRIER ... The monthly bars in Chart 6 show General Electric testing overhead resistance at 38.45, which was formed at the start of 2002 (see horizontal line). A decisive close through that chart barrier would put GE at a new 5 1/2 year high and could catapult the big blue chip to much higher levels. The stock has regained only half of its 2000-2003 price decline and is still more than 30% (18 points) below its all-time high at 55. It's got a lot of catching up to do.