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Does General Electric’s Stock Chart Point to New Lows?

Bret Kenwell

What happened to General Electric (NYSE:GE)? The once-steady industry stock with a respectable dividend has been anything but reliable over the past 18 months. Even after GE stock price collapsed to $6.66 per share, GE stock still remains wildly volatile, as it surged more than 50% from those lows before its recent retreat.

GE Stock

Source: Shutterstock

The gyrations of GE stock price have left long-term investors — assuming there are any left — scratching their heads. Will GE be forced to divest its top-notch businesses in an attempt to repair its balance sheet, leaving it with no productive units? Or will GE’s management be able to strategically offload enough assets and turn cash-flow positive, enabling GE stock to get back on track?

That remains unclear, but even under the rosiest of circumstances, the time frame of the recovery of GE stock price has now been moved back.

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GE’s Recovery Takes a Detour

As I’ve written previously on InvestorPlace, GE stock price has been a bit hotter that its fundamentals justify. GE stock went from a low of $6.66 (before the market bottom in late-December) to more than $11. We’ve seen big rallies in Honeywell (NYSE:HON) and United Technologies (NYSE:UTX) too, but they are doing much better from a business perspective. But aside from a few asset sales, the fundamentals of General Electric stock really weren’t improving all that much.

Its cash flow is still under pressure, its balance sheet is still weak and GE is being forced out of multiple businesses. Basically, I don’t think that General Electric stock deserved to rally more than 66% in a few months.

JPMorgan analyst Stephen Tusa, who’s bearish on GE stock, agrees with me  or should I say, I agree with Tusa, who was the first analyst to raise the alarm on General Electric stock. He continually slashed his price target on the way down, nailing every bit of the decline before it happened. Around the lows, Tusa bumped his rating from “sell” to “neutral”, but maintained his $6 price target.

He now calls that price target “generous” after the company’s latest news. Earlier this week, GE CEO Larry Culp said that the conglomerate’s industrial-free-cash flow would be negative this year. He painted a no-nonsense picture that basically said the turnaround won’t start for a long time. Tusa says the turnaround will take a couple of years, arguing that GE stock probably hasn’t bottomed yet.

On Mar. 14, General Electric will provide its outlook. Those who are bulls on General Electric stock  will view the event as an opportunity for GE’s management to reignite the shares. Those with more bearish views on General Electric , like JPMorgan’s Shawn Quigg, think that optimism is likely too high going into the event. For traders, this event will also be an opportunity.

Trading GE Stock 

Chart of GE stock price

How far can GE stock fall on negative news? If the shares reach Tusa’s $6 price target, we’re talking about more than 36% downside from their current levels. Also keep in mind, though, that if General Electric does hit Tusa’s price target, it will have taken out its 2018 lows as well.

When trading GE stock, there are a few levels to keep in mind. The first is $8.86. If General Electric stock falls below this mark, GE stock will be below both its 50-day and 100-day moving averages, as well as its prior downtrend support. That would open up the possibility of a drop below $8 and increase the odds of a retest of the stock’s lows.

If General Electric stock gets to $10, I want to see how it handles that level. At $10, there is short-term downtrend resistance, as well as the 21-day moving average of $9.86 (not pictured above). It will be significant if that area becomes resistance.

Ultimately the charts are losing some of their bullish luster, and new lows could be on the way. However, we need to monitor this name and some of the existing support levels before making that call. Stay flexible with General Electric stock.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

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