Conglomerates Painting A Picture Of Global Weakness

By Joey Fundora | June 29, 2010 AAA

A conglomerate is a combination of two or more corporations engaged in entirely different businesses but rolled together into one corporate structure. This setup usually involves a parent company and several (or many) subsidiaries. Often, a conglomerate is a large, multinational, multi-industry company.

Because they of their global reach, conglomerates are also a good proxy for the global economy. According to this measure, things aren't looking good. Many conglomerates have recently fallen back beneath their 200-day moving averages after several months of trading above this level. With the recent weakness in this group, it's possible that they are forecasting further deterioration for the general markets. (For further reading, check out Conglomerates: Cash Cows Or Corporate Chaos?)

General Electric Company (NYSE:GE) is one of the largest companies in the world and the recent weakness in the stock doesn't bode well for the markets. GE had been in a healthy trend until the wheels fell off in May, and the stock fell sharply leading into the "flash" crash. While it bounced sharply off the low set that day, it quickly revisited those lows a few days later. It has since settled into a trading range near those lows at approximately the $15-$16 level. GE is currently testing its lows again; if it breaks down it may encounter more selling pressure.

Source: StockCharts.com

3M Company (NYSE:MMM) is another large conglomerate that is testing an important level. While MMM is well above its recent lows, it is in the process of testing its 200-day moving average. This average is often the demarcation point for stocks in a longer term uptrend or downtrend. Stepping back, MMM is still trading in a large base after a rally from its bear market lows. It briefly broke under this base in June but quickly found buyers. It failed at its 50-day moving average and if it fails here at its 200-day moving average it could drop for a retest of its June lows near $72.50. This would likely signal a larger breakdown in MMM that could push it back under its base.

Source: StockCharts.com

Textron (NYSE:TXT) is another conglomerate testing the bottom of its base. TXT has found strong support near $18 over the past several months and appears to be headed for another test of this level after failing a test of the 200-day moving average. This level has been a floor for this stock dating back to September 2009, and a break below it would leave many traders underwater. Overall, TXT remains in its base, but should be monitored closely to see how it reacts to this test.

Source: StockCharts.com

Danaher Corporation (NYSE:DHR) is a conglomerate that hasn't yet broken under its 200-day moving average. While it has suffered through the recent weakness in the markets, it remains in its base and the level to watch for support is near $38 per share. This level is above its 200-day moving average and combined with the average, it should hold buyers.

Source: StockCharts.com

Bottom Line
While the conglomerates have not broken down and could find support at these levels, the recent weakness is signaling an unhealthy environment. Because these stocks reach out across the globe, the implications of an unhealthy environment span several markets overseas. Traders should continue to practice patience as the markets attempt to find some footing. In the meantime, the conglomerates are a good group to watch for clues about larger global trends.

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

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