When it comes to General Electric (NYSE:GE) the opinions are bifurcated. The bulls still dream of prior glory while the bears think General Electric stock is headed to zero.
Today’s write up is to share the notion that both sides are wrong and somewhere in the middle lies the truth. And only you can decide if it’s a good time to buy or sell GE stock … and at what level.
The company is in disarray, but eventually, management will right the ship. After all, they should have a lot of levers to pull. But it won’t be the same company it was before, so whatever upside bulls expect has to be realistic to the new optics and construct of the emerging company.
Conversely and for the same reason, bears should not expect to see GE stock head to new lows. The nastiness of the story has already broken out and the biggest stock damage is done. The stock has support below from the December base. The S&P 500 is near all-time highs, so GE could fall with markets if they correct.
Many on Wall Street claim to be experts on GE. Just this week, JP Morgan downgraded GE stock, but I bet this was due to the fact that it has so far out-performed the S&P 500 by double. GE is up 30% year-to-date vs the S&P’s 15%.
The downgrade fit the technicals well. If I were long General Electric stock on Feb. 25, I would have booked my profits. The stock had a massive spike after a 60% rally off the December bottom. And it came into an area that was a ledge for the October correction. Those tend to be resistances, so it was ripe for a drop.
Pivot areas like these are where bulls and bears like to fight it out, thereby creating congestion, so the JPM analyst was a few days late in their downgrade.
How to Approach General Electric Stock Today
Moreover, I could also make this same argument for the price action on March 14. GE stock spiked from a mini-correction and into a similar resistance area at $10.50. That was yet another opportunity to book profits.
I lean on the technical aspects of the chart because fundamentally it is hard to value GE. This is still a company in transition, so traditional metrics can be misleading. It is cheap from a price-to-sales perspective, but we don’t know what revenue streams they will divest next … if any.
Regardless of opinions, there are technical clues as to how General Electric stock will behave for the next few weeks.
The stock is in between two strong zones. The first is strong support at $9 per share and the second is resistance at $10.30 per share. If either of these two breaks there would be an overshoot in that direction.
So if the bulls can close above the resistance they can then target the Feb. 25 fail. Conversely, if the bears break through the support, they can retest $8.30 per share.
If you are long GE already, I’d set a stop loss to avoid the ride down below $9. But if you are looking to get long GE stock, I’d suggest deciding on a time frame. Those who want to bet on the long-term total recovery of the company should buy it now. Because a few pennies up or down won’t make a difference in the long run.
But if you are looking for tactical trades, I’d suggest waiting for General Electric stock to breach lines of resistance, then buy it to ride up the measured moves.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.