Long-beleaguered shares of General Electric (NYSE:GE) would have to climb less than one dollar for nearly everything, including the rhetoric surrounding GE stock, to change for the better. But, in football parlance, that last few inches to a first down may as well be forty yards. Falling short is falling short.
And analysts aren’t helping.
On the verge of a breakout, UBS analyst Damian Karas lowered his stance on General Electric stock this week, from a “Buy” to “Neutral.” Karas believes the 40% rebound from the late-2018 low is about as much as GE stock is capable of rallying right now, without more progress on the cash flow front. The analyst is also suspicious of the company’s power arm, which has proven to be dead weight for years.
He may be right. But, the right nudge could readily change not just how the market interprets information about General Electric, but change the criteria being used to judge GE.
GE Stock and the Failing Comeback
It’s an idea that’s been posed before, but merits repeating. General Electric shares aren’t a typical equity at this time. They’re a psychological chess match.
Players are aiming to figure out how other players will feel about the most plausible headlines anywhere from six weeks to six months from now, including the potential sale of assets like last year’s sale of its locomotive business to Wabtec (NYSE:WAB), or this year’s planned sale of its life sciences division to Danaher (NYSE:DHR).
Everyone’s playing the game too, including the media, and including analysts. Most don’t know they’re playing the game, but ‘being right’ about General Electric would be a nice feather in someone’s career cap.
To that end, the chart’s been largely leading the rhetoric, rather than the other way around. It’s arguable that UBS’ Karas would have remained bullish and raised his target had GE stock started July as bullishly as it ended June. The downgrade didn’t take shape until General Electric shares had decidedly stalled.
That chart, however, is still oh-so-close to the technical breakout that could serve as a paradigm shift.
There are actually two lines in the sand to watch. One of them, $10.53, where GE shares peaked several times since February. It’s plotted in red on the daily chart.
The other is $10.73, marked as a blue dashed line on the image. That’s where General Electric shares peaked a couple of times late last month. GE stock actually traded above levels in late February, but the two aforementioned lines have been highs multiple times.
Though unable to clear either ceiling yet, that’s the direction things are moving. GE has made a string of higher lows since the end of last year, and that effort is relatively well organized. That is, the key lows are lined up, creating a technical floor that’s likely to halt any pullback. That floor is marked as a yellow dashed line.
The shape of the chart itself, however, is bullish.
The converging support and resistance lines are squeezing GE stock into the tip of a wedge pattern bullishly, building up pressure the entire time. If-and-when General Electric is finally forced out of the confines of the wedge, traders could make up for lost time.
If that break is pointed upward, look for a slew of upgrades. Look for the headlines to suddenly change their tone and timbre. Look for cash flow to matter just a little less.
Looking Ahead for GE stock
Despite a handful of respectable efforts, General Electric are having trouble with a tough ceiling.
Still, it’s noteworthy that Karas’ newest ho-hum opinion of GE came with a clear escape plan:
“We expect new management to make the right decisions, which will take time…Much of the risk is now priced in and we think the stock will take a breather on a relative basis until we get more clarity on individual assets. In particular, we flag Power, which hardly contributes to GE’s equity value today but we think could dominate sentiment into 2020.”
He’s absolutely right in that regard — sentiment remains the key.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about him at his website jamesbrumley.com, or follow him on Twitter, at @jbrumley.