Changing Perceptions On General Electric Stoke the Once-Zombie Stock

Zombie stocks are awakening. Credit for their revival goes to both election jitters now fading into the rearview mirror and the strides made on the novel coronavirus vaccine front. Bargain hunters and dumpster divers are coming after beaten-down, left-for-dead stocks like General Electric (NYSE:GE). And therein lies opportunity. If you’re willing to follow strength wherever it may lie — be it in market-leading juggernauts or bottom dwellers clawing their way back into the light — then GE stock is worth a look.

Any Way You Look at GE Stock, It's Impossible to Suggest Buying Here
Source: Pavel Kapysh /

In the past two months alone, the GE stock price has climbed from $6 to $10, a gorgeous run of 67%. Sure it’s still only a $10 stock and a shell of its former self, but it’s still a vast improvement to where the fallen angel was earlier in the year. This is the biggest percentage rally seen in 2020, and it deserves further investigation.

When outlier moves like this happen, it signals a change in investor perceptions. The pattern of swiftly stuffing rallies and heavy distribution is over. In its place lies a new theme of buying dips and chasing breakouts.

I suggest you embrace it.

GE Stock Chart Signals Higher Prices

General Electric (GE) weekly chart showing recent breakout
Click to Enlarge
Source: The thinkorswim® platform from TD Ameritrade

The weekly time frame reveals the horrific damage suffered by General Electric’s share price over the past five years. It’s a harrowing tale of destruction that should be well-known by the world at this point. However, if you look closely, you’ll discover that the downside momentum essentially exhausted itself by late 2018.

In the two years since, prices have been carving out a bottom as investors grapple with the new realities of the company’s business model. While much work remains, the past few months have seen technical improvement.

First, we finally cleared the high of the seven-month range that had previously halted every rally. Second, we’re now well above the 50-week moving average, reflecting strength in the short-term trend. That said, there’s still the declining 200-week average to contend with, as well as multiple prior resistance pivots.

Zooming in to the daily view provides further reason for optimism. November delivered a shot in the arm for the nascent uptrend. Momentum surged as prices quickly regained the ground lost during March’s pandemic-induced plunge. $13.26 stands as the ultimate target for the new trend.

Bulls have succeeded in jamming GE stock north of all major moving averages. There’s no longer the 200-day looming overhead, threatening to hinder recovery attempts. We’ve entered a new era where these smoothing mechanisms are now primed to provide support during dips and consolidation patterns.

General Electric (GE) daily chart with powerful uptrend
Click to Enlarge
Source: The thinkorswim® platform from TD Ameritrade

The volume indicator has also improved. Accumulation, or high-volume up days, now litter the landscape as a testament to institutions’ return. I could continue with glowing commentary on the merits of RSIs and MACDs, but the point has been made. Bulls hold the upper hand.

How Does a Potential 253% Return Sound?

At a mere $10, GE is cheap enough for a straight stock purchase. The upside to sticking with the underlying is it’s simple. There’s no time decay or volatility exposure to contend with. And you can optimize your exposure by purchasing the exact number of shares desired.

For those looking to either increase the leverage, the options market beckons. Given the stock’s overbought nature, I wouldn’t be surprised if we see some backing and filling at some point over the next month. To provide ample time for that to happen, I want to use March options.

Bull Call Spread: Buy the March $10/$13 call vertical for 85 cents.

The max loss is limited to the initial 85-cent investment. If GE rises past $13 by expiration, you’ll capture the max gain of $2.15. That works out to a potential 253% return.

On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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