On Wednesday morning, before the market opened, it looked like General Electric (NYSE:GE) stock was set to rally. The company reported better-than-expected second-quarter earnings and raised its guidance, and General Electric stock was flirting with a multi-month breakout.
Yet, even before the Fed doused the market with volatility, GE stock was having trouble. GE stock price tumbled after the market opened before recovering most of its losses ahead of the 2 p.m. Fed announcement. GE stock finished the day down less than 1%, actually beating the SPDR S&P 500 ETF (NYSEARCA:SPY).
It was a minor victory, but the bulls had bigger hopes for General Electric stock. Can GE stock still fulfill those hopes going forward?
What Hurt GE Stock?
GE’s Q2 EPS came in at 17 cents. That was down 6% year-over-year, but well ahead of analysts’ estimates of 12 cents. Its revenue of $28.83 billion declined 1.3% YoY. but was in-line with analysts’ average estimate.
GE’s headline numbers were OK, but its guidance drew a small cheer from the owners of General Electric stock. GE raised its full-year EPS guidance range by 5 cents, as it now expects EPS of 55 cents to 65 cents. It also expects industrial free cash flow of -$1 billion to $1 billion, a big improvement from its outlook in May of -$2 billion to unchanged.
But General Electric stock is not out of the woods yet.
While GE raised its EPS guidance by 5 cents per share, a Q2 tax benefit boosted its EPS by 6 cents per share. Perhaps that was previously in the guidance, but the guidance increase doesn’t look as favorable because of the tax benefit.
Further, GE warned about headaches stemming from the grounding of Boeing’s (NYSE:BA) 737 MAX planes Specifically, GE’s cash flow could take a $1.4 billion hit if the planes remain grounded all year.
GE said that Boeing’s problems weren’t in GE’s previous guidance. But some analysts think that the company’s spare-parts business will be boosted by Boeing’s problems.
All in all, GE “passed” its quarterly test. Its numbers weren’t amazing, but they weren’t horrific either. The company seems to be slowly but surely improving, and that’s positive for GE stock price.
Trading General Electric Stock
Click to Enlarge
We have been watching General Electric stock for some time now, looking for a breakout over $10.50. GE stock price has eclipsed this resistance mark four times, including the most recent post-earnings pop. In the wake of that surge, $10.70 has become a new resistance level.
With GE stock price below $10, the shares are below their 20-day and 50-day moving averages. That’s not too bullish, but I wouldn’t give up on General Electric stock just yet.
The shares continue to make a series of higher lows, and their uptrend support will come into play near $9.75. The 200-day moving average is still declining and comes into play near $9.40, while the 61.8% retracement level is at $9.38. Finally, range support is all the way down at $9.
So what do we do with General Electric stock floating around in the middle? Like GE’s fundamental situation, the technicals are improving, but they’re not great.
I either want to see General Electric stock rebound to its prior resistance level at $10.50 or pull back into the $9.40 to $9.75 range. If the latter scenario occurs, investors need to see how GE stock price responds to deeper support levels and use the decline to improve their risk/reward ratios. By clearing $10.50, General Electric stock will reclaim a prior key level, putting it above its 20-day and 50-day moving averages.
The Bottom Line on General Electric Stock
Management’s overall guidance and, more specifically, its free cash flow outlook, gave investors more confidence in GE stock. But the concerns related to Boeing and GE’s ongoing turnaround are keeping their expectations in check.
This is one of those cases in which the charts accurately reflect investors’ sentiment around the fundamentals. Given the added volatility of the market, investors should not make reckless trades or buy the shares at negative entry points.
Instead, investors should be patient with General Electric stock. They should either wait for better prices to emerge or wait for a setup that appears to be stronger.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
