GENERAL ELECTRIC LEADS MARKET LOWER -- THIS WEEK'S FAILURE AT OVERHEAD RESISTANCE SUGGESTS THREE-MONTH CONSOLIDATION HAS ENDED -- THAT CALLS FOR RETEST OF THE JANUARY LOWS

GENERAL ELECTRIC TUMBLES 12% ... By now you probably know that General Electric tumbled 12% on Friday on massive volume. The fact that GE is the second biggest stock in the market (and the fact that many consider it a bellwether of the U.S. economy) depressed the rest of the market. The daily bars in Chart 1 show Friday's terrible chart day for GE. The stock gapped all the way to its March low for the biggest drop in twenty years. Volume was huge. A pretty ugly chart. The bigger question is the negative impact that had on the rest of the market and what it means for the market's overall trend. Unfortunately, it's not good.

Chart 1

S&P 500 FULFILLS MINIMUM UPSIDE TARGETS ... This week's price action has caused me to revise my short- to intermediate- price and time targets somewhat. The basic conclusion remains the same, which is an eventual resumption of the bear trend. How and when that happens has changed somewhat. I've been describing the recent rebound as "intermediate" in nature. That means it can retrace a third to a half of its prior downtrend and last from three weeks to three months. I also pointed out that the minimum upside target for the S&P 500 coincided with its February highs just below 1400. By last week, the S&P 500 had fulfilled both minimum upside objectives of a 38% bounce that lasted three weeks (Chart 1). Using that criteria, a case can be made that the rebound has ended. I had been counting the S&P rebound from its mid-March intra-day low. I now believe the place to start the time count is mid-January.

Chart 2

SIDEWAYS RANGE HAS LASTED THREE MONTHS... The Dow chart shows what I believe to be the more correct pattern. Chart 3 shows the Dow spending the last three months trading between support at 11750 and resistance at 12750. It has made three unsuccessful attempts to break through the upper part of the range. The fact that 12750 coincides with the Dow's November low makes that resistance barrier even more important (because it increases the odds that the three-month consolidation is a fourth wave in a five-wave decline). The fact that the trading range lasted for three months is also significant. For two reasons. A sideways consolidation shouldn't last longer than the prior downtrend. The downtrend from mid-October to mid-January lasted three months. That means that any rebound from the January low shouldn't last longer than three months. Three months is also the outer limit for an intermediate counter-trend move. Using the January low as our starting point puts a time target for a top in mid-April. This view increases the odds that the intermediate recovery that started in mid-January has probably run its course. A retest of the January lows is now likely.

Chart 3