The “you-know-what” is hitting the literal and proverbial fan at General Electric (NYSE:GE). And for bearish traders who like to ride troubling trends on and off the GE stock chart, a simple but effective intermediate-term long put strategy is set to bring good things to life. Let me explain.
Just when GE stock bulls thought things couldn’t get any worse, a gas turbine blade failure this past week sent shares tumbling to nine-year lows. The issue has had J.P. Morgan’s Stephen Tusa, a well-documented bear, further questioning the conglomerate’s power business prospects and sympathetically cutting his price target this past Friday from a below-market $11 a share to a fresh Street low of $10.
And based on the continued drilling in GE stock this week, it appears investors agree the iconic company, which ended a record 111-year run in the Dow Jones Industrials this past June, is still a dog with fleas.
General Electric Stock Monthly Chart
I sometimes like to say there’s always a line somewhere. It’s a wiseacre crack at a stock’s technical picture and the many, many lines of support and resistance that always make their presence known.
In the case of GE stock, shares failed, more or less, below the 62% Fibonacci level. I was personally optimistic the slight breach and ensuing consolidation pattern was going to be a bear trap.
Ultimately, that forecast was wrong.
Now GE is quickly moving into a testing position of the next potential technical support line, the 76% retracement level dating back to the lows of the financial crisis nearly 10 years ago. As I said, there’s always a line somewhere. But I’m not bullish on GE stock as this next test comes into play.
More than a few technicians believe when the 62% is broken, it’s a foregone conclusion shares will retrace the full 100% and the 76% level is of much less importance. I’m not a buyer of that blanket statement. But nor am I a buyer of GE stock. Bottom line, with no Bollinger support to speak of and even GE’s monthly stochastics hinting at an ugly situation getting uglier, I’d rather look for bearish opportunities.
GE Stock Long Put Strategy
Two months ago I smartly offered a spread combination that ensured if a bottom in GE stock wasn’t in place, the contrarian play wouldn’t put bullish traders in a body bag. And even after Tuesday’s gut-wrenching drop the position is out just 60 cents. That said, exiting for a much smaller loss in August was certainly available and very approachable.
Following the latest less-than-great confirmation for GE stock bulls and additional backing for bears, I’m favoring a straight up long March $10 put. With shares at $11.26 the outright bearish bet can be purchased for 41 cents.
If I’m correct in thinking GE is going to continue sinking lower, this contract offers about six months to position bearishly in the stock. That’s a fair amount of time to capitalize on further weakness in GE stock in our view. The put contract also has less than 4% of the exposure associated with shorting shares and in the scheme of things, isn’t too far out-of-the-money. Net, net, that’s a combination, along with a 50% money stop, that should bring good things to life for bearish trend traders.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
