Some companies are weathering the bear market with flying colors, while others are struggling to find a bottom. Unfortunately for General Electric (NYSE:GE), it finds itself in the latter group. Today we’re taking a deep dive into all that ails the GE stock chart. It isn’t going to be pretty.
There are two ways to analyze the price behavior of a stock. The first focuses on absolute performance. And the second looks at relative performance. In other words, how is GE acting by itself? And how does that compare to the behavior of the S&P 500 index or its sector? The second method provides clues into how GE stock stacks up against others. Is it leading or lagging? The answer to these questions can determine whether General Electric offers a trade worth taking, or if your hard-earned money is best invested elsewhere.
We’ll look at both below, but first, let’s explore how we got here.
Two Very Ugly Years
General Electric shares were struggling long before the novel coronavirus emerged and went global. Over the two years spanning 2016 to 2018, the stock lost 80% of its value. The plunge underscored the company’s deteriorating fundamentals while destroying shareholder confidence. Despite a booming stock market and stable economy, GE earnings were sinking — enough to threaten its survival and require slashing what quickly became an unsustainable dividend.
During its last good year (2016), the conglomerate’s full-year earnings per share (EPS) was $1.35. Just two years later (2018), EPS slumped to 14 cents. Such a dramatic drop in profits required the company to take drastic action to shore up its balance sheet. At first, management halved the quarterly dividend payments from 24 cents to 12 cents. The reduction proved insufficient, however, and the payout was ultimately cut to a penny.
A new CEO and back-to-back earnings reports that had investors cheering boosted GE stock to a new 52-week high. Were that the end of the story, we could finish with rosy forecasts about the ongoing recovery. Unfortunately, COVID-19 arrived to upend everything, and GE has since plunged to a fresh 20-year low.
GE Stock Charts
The price action during all of this drama is laid out in the weekly time frame. You can see the trend stabilized last year and headed into 2020 on a high note. Then March’s rug-pull reversed everything and caused the stock to fall below the 2018 low of $6.66. The relative strength index is confirming sellers’ increased aggression with a drop into oversold readings. The pop, drop, and chop of the past four weeks has created a low base pattern that threatens to trigger another leg lower if we breach $5.90.
The daily chart doesn’t improve the stock’s prospects at all. Though last week ended with a powerful rally, GE remains below a descending 200-day, 50-day, and 20-day moving averages. And the distribution days that preceded Friday’s jump confirm big sellers are active. In sum, trend, momentum, and volume are all solidly flashing red lights to buyers.
But it’s not just the absolute performance that I find lacking. Relative to the rest of the market, the stock looks even more dismal. The S&P 500 gapped higher Friday morning to its 50-day moving average. If GE had followed the index’s trajectory, it would be over $9 at this point. But it’s $6.84.
The relative strength of GE stock versus SPX is displayed in the lower panel of the daily chart above. This week’s reading dipped to an all-time low.
When you add up all the evidence, it’s impossible to suggest buying here. At a minimum, I’d want to see the resistance pivot at $8 give way to confirm the stock is at least returning to a daily uptrend. But even then, you have the stock’s long history as an underperformer to contend with. There are simply better stocks to buy.
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