As the global stock malaise continues, it is dragging most stocks lower with it. Correlation among stocks and risk assets in general tends to significantly increase in heightened volatility and selling periods, thus leaving few if any places to hide.
Shares of industrial conglomerate General Electric Company (NYSE:GE) have lost 8.5% so far in January, which is more or less in line with the year-to-date drop in broader equity indices. Just like the equity indices, GE stock is nearing some significant confluence support, from which we could see a bounce emerge.
Active investors, take notice.
One of my core themes for 2016 is capital preservation versus reward chasing. After a seven-year cyclical bull market, we are late in this expansion phase, and after an already difficult year in 2015 for risk assets, I expect 2016 at the margin to be even more challenging for the buy-and-hold crowd. Nevertheless, 2016 will likely be littered with strong counter-trend rallies such as what I laid out in yesterday’s missive, and even stronger selling periods.
While there will be few if any places to hide, large multinationals with a decent dividend yield — such as GE stock — may from time to time offer sound risk/reward opportunities.
GE Stock Charts
For some perspective on GE stock’s bigger picture, let’s start off with the multiyear weekly chart stretching back to 2009. Note that the stock has respected and held its lower support line all along, which last October led to a breakout past horizontal resistance around the $28 area. General Electric then continued to sputter higher right into year-end 2015, but as broader-market selling pressure increased in early January, GE also began to mean-revert lower.
Earlier this week, GE stock completed a retest of the $28 breakout area, which I marked with the blue bubbles on the chart.
Looking at this mean reversion or retracement back to the former breakout area on the daily chart shows that this $27.50-$28 horizontal support area currently also matches up with its 100- and 200-day moving averages (blue and red lines, respectively). The MACD momentum oscillator meanwhile is nearing oversold readings it last saw during the market sell-off from last August.
General Electric is scheduled to report its next batch of earnings this Friday, Jan. 22, and any further selloff or bullish reversal from current levels may offer active investors and traders a juicy risk/reward bounce as per this technical and tactical picture.
This could see the stock bounce back toward the $30 area and fill its down-gap from Jan. 7.
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