The easy long-term thesis on General Electric (NYSE:GE) stock is that given time, it will recover some luster. This means a smart investor could hold it for years.
The concept here is very simple: Have patience and wait out the headlines from messy turnaround efforts. But unsurprisingly, this is easier said than done. Each talking head has a loud opinion, and each claims supremacy.
Meanwhile, for the short term, the charts offer a road map to actively trade GE stock. This year I shared two write-ups that yielded results, and neither of them was an emphatic statement on the fundamentals. Those are still too murky for us to properly gauge.
Some in the media opine on General Electric stock as if they are the only experts on it. Most notable is JPMorgan analyst Stephen Tusa who placed a $5 price target on GE stock last month. This came after the company’s 20% post-earnings rally. His note hit the brakes and caused a 6% fade.
Traders Need the Charts
Source: Charts by TradingView
The proper way to trade GE stock is by being humble and studying the short-term price action for guidance. The charts’ technical aspects contain a wealth of clues on direction and distance. Charts can map where the bull or bear opportunities lie, and what potential they offer.
For General Electric stock, the battle is currently ongoing over the resistance neckline near $12, versus the potential pitfall down to fill the open gap to $9 per share. While this is not a forecast, it is a scenario that currently exists.
The stock is now falling back into the neckline that was resistance from March through July of this year. It is likely to be contentious on the way down. Buyers and sellers are likely to battle it out, thereby creating support. Moreover, $10.20 is GE’s 2019 point of control. This is where the trading volume was heaviest. That means $10.20 also becomes a support zone on the way down. Therefore, the bulls have help since they have strong footing below. So, dips should remain opportunities to take bullish bets.
The next opportunities from here are if the GE stock price breaks above $11.20. If it does, the bulls can rebuild the momentum to breach the $11.80 roof.
Conversely, if the bears are able to breach through the $10.40 zone, they would invite more sellers to fill the gap to $9 per share. Patience is key, so it’s best to wait for the breach of either side before chasing it. Anticipating an opportunity often causes bad timing and puts the investor at a disadvantage to the other side of the trade. The person with the best read on levels is likely to win.
Don’t Overthink General Electric Stock
If your goal is to invest in GE stock, not simply to trade the short term, then the setup is easy. I would simply plug my nose and buy it.
The idea behind this advice is that management is working to fix this once-iconic corporation. I bet that they will find a way to repair the damage. Meanwhile, the stock is broken but it still is a trading vehicle. The media complicates things by highlighting expert opinions and ratings, but the truth is that it merely needs time to heal.
Fundamentally, GE sports a high price-to-earnings ratio but this is tolerable since it is a company in transition. The typical metrics may not adequately apply to it yet. Besides, it only sells at 0.8 times sales, so from the top-line perspective it is not bloated.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
