Shares of General Electric (NYSE:GE) had enjoyed a strong 2019. The stock bottomed out in December just below $6.50, before General Electric stock rallied more than 75% to $11.27 in February.
Since then though, GE stock has been consolidating in a mostly sideways pattern. However, that sideways pattern is starting to develop into a rather negative look. That’s even as General Electric stock has remained well-above its December lows.
It has got investors wondering if there’s been a “change in tune” with GE stock and if the sideways action will result in dead money — or worse, losses — rather than resolve higher. Before diving into the company, let’s look at the technicals.
Trading General Electric Stock
We have been covering General Electric stock here on InvestorPlace for quite some time. It’s no wonder, given its former place among America’s blue-chip companies. That’s no longer the case, even among its own industry. Names like Honeywell (NYSE:HON), 3M (NYSE:MMM) and United Technologies (NYSE:UTX) are all considered superior entities.
In any regard, we kept such a close eye on GE stock because of its tight trading range. Specifically, we continued to highlight range support at $9 and range resistance near $10.50. The latter elevated itself to around $10.70 in June and July, but we’ve seen a drastic shift in sentiment since.
Click to EnlargeInterestingly enough, those range levels have now doubled in significance, as it highlights two key Fibonacci retracements. The 38.2% retracement sits up at $10.60, while the 61.8% rests at $8.99.
The question now is, can GE stock reclaim former range support and the 61.8% near $9?
Last month, General Electric stock traded down to support and gapped below it, plunging to $7.65. On the subsequent retest though, this former support level acted as resistance, as GE again pulled back to sub-$8 levels. That’s where the “change in tune” reference comes in.
Now just under $9 again, bulls need to make a strong showing. If General Electric stock can reclaim the $9 level, it puts the 200-day moving average at $9.25 and the 50-day moving average at about $9.50 on the table.
GE stock will need to reclaim those two key moving averages in order to get back to range resistance near $10.60.
If $9 acts as resistance, August support at $8 is a possibility. Below that and the August lows, and sub-$7 is on the table.
Key Analyst Will Move GE Stock
A key catalyst for General Electric stock has been JPMorgan analyst Stephen Tusa.
Tusa upgraded GE from underweight to neutral in December, sparking an enormous rally. To be clear, he wasn’t bullish, just less bearish given that the stock had gone from $30 to $7 in a relatively short period of time.
Throughout the past few quarters — through earnings and investor presentations — Tusa has been critical of the company and of management’s outlook. He has since gone back to his underweight rating. About a month ago, he wrote that the company’s fundamentals “continue to look negative.”
He still maintains an underweight rating and $5 price target on the stock, implying more than 45% downside.
GE Stock Growth
For the most recent quarter, General Electric stock beat on earnings and revenue expectations. It also provided better-than-expected guidance. But not everything was perfect in the quarter.
For one, 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. It could also impact guidance.
Growth is far from robust, too. Analysts expect revenue to decline almost 4% year-over-year in 2019. In 2020, estimates call for just a 70 basis point advance. The plus side is that revenue would be done going down in this scenario, but disappointing in that it’s still sub-1%.
GE is still a few years away from returning to any type of impressive growth for investors. In the meantime, it needs to focus on strengthening its balance sheet and improving its free cash flow. If it can attack the latter, investors — and Tusa — will take notice.