For a second straight day, investors tried to buy the dip in U.S. stocks. And for a second straight day, markets fell anyway. The NASDAQ Composite did close flat, but after opening in the green, both the S&P 500 and Dow Jones Industrial Average declined for a fifth consecutive session.
At least for now, there’s a path for the declines to continue. Coronavirus fears only are building. U.S. futures are negative on Wednesday evening after a presidential press conference failed to calm investor nerves.
From a broad standpoint, the news doesn’t look that bad. The S&P 500, despite the recent weakness and the negative headlines, is only down 3.5% so far this year. It’s up 11.5% over the past year.
But in certain sectors, the declines have been much more severe. Travel-related stocks, of course, have taken a beating. Energy continues to tumble, as do other macro-sensitive sectors.
Thursday’s big stock charts focus on three stocks that have been hit particularly hard — yet for the most part don’t reside in the hardest-hit industries. As a result, the declines seem potentially overwrought, even if the charts don’t necessarily suggest a bounce is imminent.
General Electric (GE)
The coronavirus scare couldn’t have come at a worse time for General Electric (NYSE:GE). GE stock had rallied to a 15-month high, as confidence built toward its turnaround. As the first of Thursday’s big stock charts shows, the stock is looking for support:
- Wednesday’s 3.3% drop represented the ninth consecutive decline for GE stock. Shares obviously have exited the uptrend that began in late August, and made a textbook reversal out of a narrowing ascending wedge. From here, support at $11 needs to hold; barring that, the 200-day moving average closer to $10 represents a significant test.
- To be sure, some level of decline makes some sense. GE Aviation is one of the most important businesses remaining in the portfolio, and travel industry weakness could read across to sales from key customer Boeing (NYSE:BA). The turnaround at GE Power could take a hit if overseas utilities and governments look to pull back on spending. GE Capital could see increased losses if a recession arrives.
- But the new, leaner GE isn’t quite the industrial giant its reputation suggests. GE Healthcare, of course, drives a reasonable portion of earnings and equity value. That business should have some defensive qualities. And the slope of the decline is somewhat surprising. GE has dropped 17% since Feb. 12, more than twice as far as the S&P 500.
- And so GE, now trading at less than 20x the midpoint of 2020 earnings per share guidance, does look intriguing. But there’s clearly no need to rush in. The chart is a classic falling knife, even though shares did show some modest gains in late trading Wednesday. Support may not hold, in which case GE is heading back to the single digits. Still, for investors making a list of “buy the dip” opportunities, GE stock at least is a candidate.
Abiomed (NASDAQ:ABMD) seems like an odd stock to decline even in this bearish broad market environment. The medical device manufacturer should have little exposure to macro factors. Yet, as the second of our big stock charts suggests, the cause of the sell-off might be a lack of confidence, not economic fears:
- ABMD tumbled to a 30-month closing low on Wednesday, with shares declining 7%. That move breaches support after ABMD has established a bearish descending triangle pattern. Technically, there could — and probably should — be more downside ahead.
Of course, the weakness in Abiomed stock isn’t a new phenomenon. The near-term chart shows a series of gaps down, including after three successive earnings reports, including the fiscal Q3 release earlier this month. Shares fell 11% in January as well after the company cut guidance. As the long-term chart shows, ABMD has been disappointing investors for some time after parabolic gains in 2017-2018.
- In that context, the recent weakness makes some sense. Nervous investors are selling off stocks they perceive as risky. Abiomed’s recent performance, including issues with its heart pumps, makes ABMD much more risky than its business model would suggest
- But the sell-off might provide an opportunity too, as investors can buy into the turnaround at a cheaper valuation. Here, too, there’s absolutely no reason to rush in, given the bearish near-term chart, but when Abiomed finds a bottom it could be an attractive play.
The 1.5% gain for CenturyLink (NYSE:CTL) on Wednesday hardly seems like cause for celebration. But after that modest rally, the third of Thursday’s big stock charts looks much more attractive:
- At least for now, CTL has found support. Investors stepped in at the same level they did at the beginning of the year in an obviously very different market. The rally also creates a bullish test of the 200-day moving average. CTL stock might not be ready to snap back toward highs around $15, but Wednesday’s trading at least is a step toward establishing a range going forward.
- The buying makes some sense. CenturyLink should have somewhat minimal exposure to macro worries. Indeed, fellow telecom Verizon Communications (NYSE:VZ) has been one of the Dow Jones’ better performers over the past week (admittedly on a relative basis).
- From a long-term standpoint, there are risks. CenturyLink stock is cheap, and its dividend yields 7%. But the company has a significant debt load and growth concerns. There’s a legitimate “value play or value trap?” argument to be had with CTL stock. But what’s going on with the broader market simply doesn’t seem to affect that argument all that much. Investors on Wednesday seemed to realize that fact.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.