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General Electric Company (GE) stock is trading nearly 4% higher on Thursday morning after Chairman and CEO H. Lawrence Culp Jr. provided fiscal year 2019 guidance that was below consensus estimates. The buy-the-bad-news reaction could signal better times for beaten-down shareholders, indicating that sellers may have finished their work after a massive two-year decline. Even so, the company faces a major challenge in restoring its tarnished reputation after years of corporate neglect.
GE expects 2020 and 2021 adjusted industrial free cash flow to be positive after a negative 2019. The stock sold off nearly 8% on March 5 after the company disclosed the 2019 deficit, while this morning’s positive view for future years offers a potential light at the end of a dark tunnel. That may be sufficient to print a long-lasting bottom, but healthy returns aren’t likely until the company makes good on a long string of bad predictions about future results.
Despite this morning’s bullish reaction, it’s hard to recommend buying GE stock at the current price because it’s still trading below resistance at a declining highs trendline in place since a January 2018 breakdown. A rally above the trendline and 200-day exponential moving average (EMA) near $11 is now needed to improve the 2019 technical outlook and support modest upside into the mid- to upper teens.
GE Long-Term Chart (1994 – 2019)
The stock turned higher from the single digits in 1994 when the company was taking advantage of new international opportunities after the fall of communism. The rally went parabolic in 1998, lifting to an all-time high at $58.41 in August 2000. It reversed and dropped like a rock after the internet bubble burst, dumping to a five-year low near $20 in the fourth quarter of 2002. That marked the lowest low for the next six years, ahead of a bounce that stalled in the mid-$30s in 2005.
GE shares mounted that resistance level in 2007, but upside momentum failed to develop, reversing after adding just four points, ahead of an orderly downturn that escalated into a full-scale panic when GE Capital got stuck with bad loans during the 2008 economic collapse. The decline nearly drove the company into bankruptcy before the stock bottomed out at a 17-year low in the single digits in March 2009.
The subsequent bounce carved a slow-motion uptick that ran out of steam in July 2016 near the .786 Fibonacci retracement level of the 2007 into 2009 downtrend. The stock broke down from an 18-month top in 2017, entering a historic decline that paused or bottomed out in December 2018, less than one point above the 2009 low. The monthly stochastics oscillator entered the most impressive buy cycle since 2015 in January 2019, raising hopes for additional upside.
GE Short-Term Chart (2016 – 2019)
The on-balance volume (OBV) accumulation-distribution indicator topped out with price in 2016 and entered an aggressive distribution phase that escalated in the second half of 2018, dumping to the lowest low in more than a decade. It turned higher in January, with value players and bottom fishers opening positions in hopes of a long-term turnaround. However, this buying power barely registers in the multi-year view, telling market players that the recovery could take years to complete.
The bounce into February 2019 stalled at the 200-day EMA and declining highs trendline going back to January 2018. This marks the first time the stock has reached the 200-day EMA resistance since April 2017, denoting a modestly bullish milestone. The subsequent decline filled two downside gaps, while two unfilled upside gaps stand out like sore thumbs above $17. As a result, that level will mark a profit target if the stock can mount resistance now centered near $11.
The Bottom Line
General Electric stock is trading higher after the conglomerate lowered 2019 guidance, but it needs to rally above tough resistance at $11 to attract sustained buying interest.
Disclosure: The author held General Electric shares in a family account at the time of publication.
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