The oldest component in the Dow Jones industrial average just reported its quarterly numbers and for the fourth time in five quarters, General Electric missed revenue estimates.
Curiously, the Dow giant has entirely missed the rally this year, with GE’s stock down 6 percent year to date while the Dow and the S&P 500 are up a respective 3 and 7 percent.
Could GE catch up to the market in the second half of the year?
Richard Ross, global technical strategist at Auerbach Grayson, doesn’t think so. “This stock is going lower,” he said, noting that GE shares are down in 2014 while the market benchmark S&P 500 index is up. “That’s extremely poor relative strength which is often times the early sign of a reversal in trend. So you want to be a seller.”
Ross said the year-to-date chart of GE shows trouble. After dropping 10 percent in January, the stock returned above its 200-day moving average and has been working its way back up a trend line ever since. It broke above $27 per share briefly in June, but that turned out to be a false breakout above resistance, according to Ross.
“That sets us up for the sharp pullback to the 200-day [moving average] which we retested again [Friday] on the heels of those earnings,” said Ross, a “Talking Numbers” contributor. “Clearly a break below that 200 day would generate a very strong sell signal.”
The 200-day moving average is currently around $26.23 per share. GE closed Friday at $26.46. Ross also said investors should watch the 50-week moving average, currently around $25.88. “Any move below that level will generate an even more compelling sell signal,” he said. “I would not buy it here and I would be a strong seller on a break below those moving averages.”
David Seaburg, head of sales trading at Cowen and Co. agrees with Ross. “I wouldn’t be a buyer here at all,” he said.
Seaburg believes the key to GE has been its attempt to transform into more of a pure industrial company. “It’s starting to work out for them,” he said. “But look at their PE versus the other pure industrial plays; they’re trading at about 1.5 turns below. It’s not a significant enough discount for me.”
“I generally wouldn’t be a buyer of this stock at these levels,” he added. “Plain and simple, there’s too much risk from an execution perspective.”
To see the full discussion on General Electric, with Ross on the technicals and Seaburg on the fundamentals, watch the above video from CNBC’s “Street Signs.”
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