I still believe that there is an easy long-term thesis on General Electric (NYSE:GE) stock. Given time, the company will finally get back on the right track. So from that perspective, it remains a “hold” for years. The huge positive reaction to its recent earnings is evidence that the turnaround may have started. So is this the right time to go all in? The short answer is no.
Before you write me off as a hater, let me assure you that I have mostly shared bullish setups for GE. In early December I suggested that it would best to find support above $10 per share. I argued that level would serve for more upside potential. I was right — GE stock delivered a 13% rally from said support. In total, General Electric has rallied 58% off the August lows.
Why can’t the momentum push it further? Well, markets have a memory. GE stock just returned from a huge accident. Back in October 2018, the stock began its 50% fall. When a price recovers back to such a significant level, the stock tends to find resistance — at least during its first try. This doesn’t mean that the rally is over, but usually it is met with selling. Those stuck long are likely to exit whole.
Momentum Meets Resistance
It is important to note that this has no bearing on investors whose theses have years on the clock. But the point is that the $12.40 level is not an obvious point of entry yet. Ideally, GE stock should retest the most recent neckline for footing so that the bulls can remount other efforts to break the resistance.
If that happens, a dip into the low $11-range would serve that purpose even if it extends closer to $10 per share. The upside targets with proper footing are $14 and $16 per share.
About Those GE Stock Experts
Many claim to be experts on General Electric, especially when management is struggling. Some of these experts like JPMorgan’s Stephen Tusa can single-handedly cause a severe reaction with a simple comment.
These experts increase the likelihood of surprise headlines, and this by definition should temper all trader convictions. I don’t risk too much even when I think the setup looks foolproof. Add to this that the earnings are coming soon and the next few weeks have plenty of binary risk. In the short term, the binary aspect makes investing in GE more like gambling on the outcome of an event.
Management will soon have a chance to silence the critics. I bet that if they provide just a few points of clarity, investors will rejoice. What Wall Street hates most is uncertainty, and the General Electric team can eliminate a bit of it to reward their investors.
Of course the opposite is also true. There is always the chance that they truly have no clue and that they don’t provide clear guidance going forward. Then I wouldn’t be shocked to see traders fill the gap all the way to $9 per share. While this is not my forecast, it is a realistic scenario that exists.
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.
