Following earnings this week, General Electric (NYSE:GE) stock is continuing to bring good things to life for bullish contrarian investors both off and on the chart. Let me explain.
It’s time to let bygones be bygones. Gone is legendary CEO Jack Welch. The days of being a generational widows and orphans income generator or a storied constituent of the Dow Jones Industrials are long over for shares of General Electric. But that doesn’t mean GE stock isn’t a buy.
After losing as much as 75% of its value over the past couple years, 2019 continues to show sure signs of a turnaround in progress following this week’s “better-than-feared” quarterly confessional from General Electric.
GE stock is digging itself out of a still deep, but climbable, hole. The company managed to produce steady and slightly stronger-than-expected revenues, reaffirm its long-term 2020 and 2021 guidance, as well as crowd-pleasing, profit-topping earnings of 14 cents, versus Street views of 9 cents.
And most importantly, General Electric brought good things to life in delivering better-than-feared cash burn of $1.2 billion.
As General Electric’s management continues to right the industrial behemoth, cash flow is the metric of choice these days. And with the analyst community bracing for GE stock to have burned through $2 billion to $4 billion in Q1, this quarter’s confessional was a good one towards survivorship.
Instead of enjoying bragging rights, CEO Larry Culp told investors not to get their hopes up and emphasized the favorable timing of certain orders and collectibles in Q1. JPMorgan’s perma-bear Stephen Tusa pulled in the claws, noting GE’s results were “far from a disaster, but also far from a blowout. ”
And on the price chart, with General Electric shares already producing hefty returns on investment in 2019, following Tuesday’s GE stock reaction, that trend looks poised to continue for today’s contrarian bulls.
GE Stock Daily Chart
With General Electric shares up by roughly 42% this year, 2019 has been a much-needed reprieve for long-term holders of GE. Now, most investors aren’t remotely close to having to worry about capital gains given the company’s massive sell-off over the past two years. But GE’s long-standing bearish trend is setting up for a sustainable turnaround on the price chart.
What I’m seeing or actually what I’m optimistic about is General Electric’s double-bottom pattern that’s forming. Shares put in the second pivot low while testing the 50% retracement level and filling the late-January earnings gap. That’s bullish.
On the heels of Tuesday’s post-earnings bid, GE stock is developing a consolidation on top of the 200-day simple moving average. The price action also matches up nicely with the pattern’s mid-pivot. Lastly, with the small contraction holding the double bottom base’s 50% level, as well as the 78% level from General Electric’s 2016–2018 bear market; the significance of this bullish platform looks even more compelling.
Of course, I respect the fact there’s more than one side to every chart. Bears might point out that since topping in mid-February, shares of General Electric have also formed a couple lower highs and lows, or what many might label as being a downtrend. I get it … but I’m not buying into it either.
Bottom line though, traders can and should respect those warnings by putting GE stock on the radar for buying above $10.53. This effectively puts that particular bear argument to rest. It also allows for a lower-risk, higher-reward position in General Electric only if 2019’s bullish ways reasserts itself with a pattern busting breakout.
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 options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.