General Electric (NYSE:GE). The wind is no longer at its back. And there’s been plenty of excuses proffered for the weakness. Yet for tomorrow’s investors and away from a bearish storyline, GE stock looks increasingly ready to bring good things to life once more. Let me explain.
It’s up 21% in 2021. I’m referring to former Dow Jones Industrials blue-chip and conglomerate GE. And it’s handily beating the broader benchmark’s own solid return of about 14%.
But as a turnaround story that’s rarely mentioned in the same breath as Apple (NASDAQ:AAPL), Costco (NASDAQ:COST), Chevron (NYSE:CVX) and other former blue-chip constituents, GE has maybe unsurprisingly taken its own route to get there.
Let’s Look at GE Stock
While the Dow and other blue-chips have only recently captured this year’s largest bounties to date, GE’s outperformance was put in place back in March following a rally of more than 100% over the span of five months.
Yet before investors worry a rotation into cyclicals that’s made GE look like an orphaned stock unfit for widows and warns of something more ominous, I’m here to say, “relax.”
The thing is all stocks correct. And it’s common for pressure to occur following a larger rally in shares such as GE’s.
As well and more often than we’d like to believe, the stories behind a stock’s behavior may sound and look like solid anecdotal evidence, but they rarely pan out as prophesized.
One only needs to consider Warren Buffett’s “the world has changed” airliner warning amid the height of last year’s pandemic-related panic to realize even the best are prone to errant forecasts.
A Choice to Make
Having said that there’s a choice to make when it comes to deciding how to treat GE stock.
The more popular choice right now is to fear a bearish narrative warning Covid’s delta variant will undermine commercial travel and in turn, negatively impact GE’s most important earnings and cash flow generator – it’s aviation business.
Likewise, fretting over GE’s wind turbine investments is also popular cooler talk.
At the moment there’s an undesirable combination of rising material costs and waning installation growth taking over the conversation. And some fear the situation could persist for the next few years based on disappointing outlooks from turbine competitors Siemens Gamesa (OTCMKTS:GCTAF) and Vestas Wind Systems (OTCMKTS:VWDRY).
That’s the stock market, though. It’s always made up of bears and bulls. And right now the former have the mic in General Electric.
But for those that can visualize the long-game of GE stock’s turnaround, today’s price chart is agreeable as a forward-looking pricing mechanism capable of bringing good things to life for its investors and no matter other warnings.
GE Stock Monthly Price Chart
Source: Charts by TradingView
After six months of consolidation work, GE stock has put together a solid technical platform for a pattern breakout to fresh relative highs.
As the monthly chart of GE shows, a bullish “high handle” formed against the stock’s 38% retracement level has found support around the mid-pivot of a bottoming and bullish W pattern.
A reaction in shares above the contraction’s high of $115.23 in conjunction with a bullish stochastics crossover should reasonably find GE stock rallying towards $140 to $160 and a challenge of the 50% to 62% Fibonacci zone.
Should the handle’s current low from two weeks ago continue holding and stochastics signals a crossover prior to a breakout in shares, I’d be agreeable with a lower-priced purchase in GE alongside a stop-loss beneath the pattern bottom of $94.56.
Bottom line, either or the any number of other ways investors lean on stocks for buying decisions, I’d also turn to the options market rather than buying GE shares.
One favored strategy is a December or January bull call vertical on GE stock that’s modestly out-of-the-money. This type of spread vastly reduces downside exposure relative to owning shares, while using the power of leverage for realistic and superior returns to bring even better things to life for investors.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
