With all due respect to the analyst community, please stop handicapping General Electric (NYSE:GE) as if it’s possible to know where the company will be a year from now. Likewise to investors, be wary of treating GE stock as if it reasonably compares to peers such as Honeywell International (NYSE:HON) or Danaher (NYSE:DHR).
GE is, more than anything else right now, an enigma… an idea. Choosing not to acknowledge it as such could prove frustrating.
That’s not intended as an insult to parties on either side of the capital-markets table, to be clear. The aforementioned pitfalls are easy to stumble into; I’ve stumbled into both traps more than once myself.
But, as a guy who’s been in the investing business for 20 years now (with the gray and thinning hair to prove it) I can say I’ve seen, heard, and done it all, most of it twice.
That includes the current General Electric story and all of its nuances; same story, different name. And, the fact of the matter is, nobody has a clue General Electric is really going. They’re all guessing. We’re all guessing.
There is one thing I am confident of though. That is, if GE stock can clear one key technical hurdle, all that rhetoric is going to turn bullish in a hurry, driving what could be a decent bullish swing trade that may well flag the long-awaited, bigger turnaround.
A Closer Look at GE
It’s not a reality too many in the financial media and investment-advice business care to concede, but sometimes, our best guesses still aren’t all that good.
It’s a rarity, to be fair. People paid to pontificate tend to have a rather firm grip on things that are taking shape with the economy, the market and with individual companies.
This isn’t one of those times though. General Electric has thrown a lot of people for a loop.
But, at least the professionals at this dance have to chime in with something on the company.
Reality: The sale of General Electric’s assets like its locomotive arm to WabTec (NYSE:WAB) and the rumored liquidation of its aviation finance arm are seemingly steps in the right direction. GE needs cash to shore up liquidity problems, and selling assets is the quickest way to raise liability-free cash. Bear in mind, however, the company is selling revenue-bearing and in many cases profit-driving assets.
Some say there’s more upside to paring itself down, but others are less convinced divestitures are the right move given the company’s cash-flow challenges.
Its Power arm is in trouble too. Let’s not pretend like that’s not at least partially the result of persistently tepid oil and gas prices though, admittedly underscored by a lack of product development.
The former remains entirely out of the company’s control, no matter how well General Electric regroups its power business from the inside.
The biggest X factor of all though is the unknowable. Right now, there are simply an overwhelming number of unknowables muddling up a clear view of the company’s fiscal strength.
Perhaps more so than any other outfit seen in the modern market era, General Electric is a moving target… multiple moving targets, in fact. Nobody really knows what lies ahead, even if their thesis seem rock-solid and well-polished.
Looking Ahead for GE Stock
That’s not to suggest GE stock has to be avoided. Indeed, General Electric has the potential to be very rewarding for the right kind of trader.
The key is simply understanding that the chart of GE stock right now is driving opinions of the stock as much as it’s being driven by them.
To that end, we’re all lucky in the sense that investors have collectively, unconsciously drawn their line in the sand. It’s $10.48, where GE stock has peaked a couple of times since March.
It’s working on another test of that technical ceiling right now, but is starting that effort with the benefit of its first streak of higher lows since 2016.
Notice GE shares have also crossed back above the 200-day moving average line, plotted in white, and this time seem a little more willing to stay here.
Zooming out to the weekly chart we can see this week’s strength presses against the line that’s capped all the key highs going back to May of last year.
Clearly there’s more work to be done. But, if General Electric shares can move above its recent ceilings, it becomes much easier to justify buying.
It also becomes much easier to justify upgrades; don’t think for a minute analysts’ handling of the turnaround story aren’t being scrutinized more than they normally might for other names.
Just wait and watch.
The Final Word
I’m all too aware that penning these kinds of ideas is maddening to a whole slew of people… professionals as well as amateurs. The notion that a chart can lead to opinion changes rather than the other way around is often dismissed. And, there was a point in time, years ago, when such an idea should have been dismissed.
The market’s changed though. Fundamentals don’t matter nearly as much as stories do, assuming that fundamentals mean anything anymore. In the case of General Electric right now, they may not.
Whatever the case, don’t kid yourself about what GE stock is here. You’re not making a bet on the company by buying it now, or after any cross above $10.48.
You’re making a bet on how the masses are going to feel about GE at some point in the foreseeable future. Indirectly, you’re betting on how analysts are going to change their opinions when they absolutely have to.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.