The trajectory of General Electric’s uptrend has shifted. After spoiling shareholders with an epic six-month run, prices are taking a well-deserved breather. But this tale isn’t unique to GE stock. It’s a pivot seen across the entire market.
Momentum is flagging, and sideways is the new up. Times like these chop up the impatient while delivering frustration to swing traders.
Still, there are trading tactics that could work for GE stock. They require a bit of creativity or willingness to shift gears.
After chronicling the recent price action, I’ll share my top three ways to trade General Electric now. Two involve using stock options. The third requires lengthening your time horizon by using the weekly chart to play.
GE Stock Chart
Let’s start with the bigger picture. The weekly view shows just how significant the recovery has been. Heading into the fourth quarter last year, GE stock was stuck beneath all major moving averages. Now it’s basking in the sunlight above them. This is the first time we’ve seen the north side of the 200-week moving average since mid-2017.
What initially appears as a choppy mess on the daily turns to nothing more than a brief pause on the weekly. The last three weeks have seen inside bars that are utterly harmless. We haven’t tested support or resistance and simply are skating sideways. It’s as if the uptrend has been put on pause and the market gods have yet to return to hit the play button.
The churn has created a symmetrical triangle on the daily chart. On the bullish side of the ledger, the series of higher pivot lows remains intact. Importantly, the last one saw support at the rising 50-day moving average.
Bears will point to two items supporting their cause. First, the early-March plunge saw significant volume. The burst of distribution days pointed toward heavy institutional profit-taking. Second, a lower pivot high formed following the decline that echoed bears’ increased aggression.
Charting theory suggests that the bullish and bearish signs cancel each other out, resulting in an overall neutral pattern on the daily chart. In times like this, I defer to the trend on the weekly, which, in this case, is higher.
3 Ways to Play
Let’s explore three ways to play GE stock now.
Stock traders willing to bet the consolidation pattern eventually resolves itself in the direction of the primary trend (that is, higher) could trade GE off the weekly chart. For the trigger, you could buy now with an anticipatory entry or wait for a break over $13.70. Since a tight stop loss runs the risk of whipping you out due to noise, place your exit below the triangle’s low at $11.90.
A second path that will profit even if prices stagnate is the covered call. You can buy 100 shares of GE and sell the May $14 call option for 55 cents. The premium collected upfront represents the potential cash flow you’ll capture for the month. The $55 translates into a tidy 4% return over the next six weeks. If GE rises past $14, you could also pick up another $75 of profit from price appreciation in the stock before you have to sell it at $14. In total, the max gain for the entire position is $1.30, or a return on investment of 10%.
The third and final idea is to sell a put. In doing so, you obligate yourself to buy 100 shares at a lower price. For instance, if you sell the May $12 put for 37 cents, you are on the hook for acquiring 100 shares at $11.63. That’s only if GE sits below $12 at expiration, however. If it doesn’t, you’ll simply pocket the $37 per contract as payment for your promise.
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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