Shares of industrial giant General Electric Company (NYSE:GE) on Friday closed the day higher by 1%, but you wouldn’t know it by how GE stock opened trading for the day. This strong bullish reversal now sets up a trading opportunity for active investors.
When General Electric reported its latest batch of earnings last Friday, it came in with another miss and cut forward guidance. This intensified the fears among investors that the company would cut the sacred dividend that plenty of investors are holding this stock in their portfolio for.
GE Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Starting off with a big-picture view using the multiyear weekly chart, we see that GE stock’s year-to-date drop of close to 25% has it trading around a technical confluence zone made up of diagonal as well as horizontal support lines. From a momentum perspective as measured by the MACD momentum oscillator at the bottom of the chart note that the last time the stock was this “oversold” was September 2011, when the stock began to rally again.
To be clear, none of this guarantees that GE stock from here will immediately begin to climb higher, but the reward-to-risk at this juncture in my eye is better than it has been for a long time — for a trade, for now, that is.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
While I am absolutely not in the business of calling tops or bottoms in the stock market, part of my daily and weekly routine includes looking for extremities of emotions (greed and fear) in the markets. And the price action last Friday in GE stock on many fronts smells like an extreme in bearishness has been reached, at least for the short term.
GE stock in the early minutes of the Friday trading session fell as much as about 6%, but by the early afternoon session had recovered all of those losses as sellers seemingly exhausted themselves with the early morning drop. Like I always tell my clubhouse members and clients, when bearish or bullish extremes are reached and price action confirms this with a move in the opposite direction, then a high probability trading opportunity presents itself.
Thus, active investors and traders could look to buy GE stock at these levels, using the $22.80 area as a very-last-resort stop-loss and targeting the $25-$25.50 area as a first upside profit zone.
Check out Serge’s Daily Market Outlook for Oct. 23.
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