General Electric (NYSE:GE) is a shell of its former self. Its dividend has all but disappeared, and its price trend was destroyed over the past three years. But bulls are returning to pick up the pieces, and GE stock looks better than it did at any point since 2016.
Today we’ll provide a deep dive into technical analysis to discover the price levels and trends that are driving the recovery.
The Big Picture for GE
The weekly time frame chronicles the dramatic twists and turns seen in General Electric stock over the past decade. Beaten down stocks usually require time to heal. Time allows the narrative to change as pessimists wash out of the stock and new buyers emerge.
Optimists glimpsing a turnaround story enter the fray with longer time horizons and stronger convictions than the battered shareholders who are finally capitulating.
Time allows overhead supply to weaken and resistance levels to finally give way. This passing of the baton from sellers to buyers manifests itself on the chart as higher pivot lows and higher pivot highs. Both are a byproduct of increased buying aggression. Note the ascending triangle pattern that just broke to the upside on the weekly chart. This is the first such resistance break we’ve seen since the death spiral began in 2017.
Spectators waiting for the first rays of hope on the weekly trend now have their green light.
The Daily Time Frame
GE stock kicked off 2020 with a bang, ripping three days straight for a 9% gain. Shares are now perched at a 52-week high above a rising 20-day, 50-day, and 200-day moving average.
The subtle upturn in the 200-day is particularly helpful in building the case that the bottom is in for the GE stock price. It takes more than a quick rally to turn the 200-day. Sustained and prolonged upside movement is required. And we’ve had that.
Volume patterns have also turned the corner and show accumulation days outpacing distribution days over the past quarter, particularly after October’s earnings report lit a fire in the stock.
With General Electric shares up close to 10% in a few days, it is flashing short-term overbought signals, so don’t be surprised if some consolidation or a pullback emerges. In either case, the weakness should be short-lived and has a silver lining. It creates a lower-risk entry than chasing new longs here.
The cheapness of GE’s stock price makes equity trades an easy way to go if you don’t want to mess with options contracts. Because of the overstretched status, however, I suggest patience. A dip toward the 20-day moving average near $11.50 is worth waiting for if you seek a more optimal entry.
GE Options Trade
On the options trading front, demand for derivatives has picked up over the past month. But implied volatility still sits near the lower end of its one-year range with a rank of 11%. That means premiums are low and the potential payout for strategies like naked puts are down. You can still do it, but don’t expect a rousing ROI.
If you’re looking to get paid for your willingness to buy shares, then you have two choices.
High probability, lower reward: Sell the February $11 put for 21 cents.
Lower probability, higher reward: Sell the February $12 put for 55 cents.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!